Accounting & Taxation Advice
CWF professionals receive extensive training to keep current on all the tax changes to ensure you get back all the money you are entitled to.
At CWF Group, we understand the importance of being able to provide our clients with complete Financial Planning Solutions. As a result of this, we have professional relationships with experienced accounting firms. This ensures that we have access to all the necessary information to assist us in producing individually tailored financial plans for our clients. We strongly believe and value the importance of working together as a group of professionals to provide more appropriate solutions and advice to our clients.
Alternatively we are happy to engage with your account and work with them to ensure that together we can achieve the best possible financial outcome for you.
The true art of tax planning involves a deep understanding of both the income tax act and the client’s situation to craft a complete set of solutions that minimize, defer and avoid income tax payable. The Canada Revenue Agency (CRA) allows us to reduce our taxes payable as much as legally possible.
“We’re creative thinkers – always thinking outside of the box.”
Professional Corporation (PC – Incorporate)Click here to expand
The Professional Corporation offers numerous tax-saving advantages, creditor-proofing and family planning features, namely:
- Deferring Tax (and saving) on retained income:
- Up to $500K in “active business income” each year eligible for low 16.5% tax rate (Ontario)
- Excess income above $500k only 32% tax rate in 2009, and down to 25% in mid-2013
- Significant tax savings when considering the highest personal tax rate still 46.4% (Ontario)
- On $500K in excess income, tax deferral is about $150K per year! (over 20 years, this amounts to over $3 million!)
- Ability to income split between Spouse, kids and parents: The essence of INCOME SPLITTING involves the legal shifting of taxable income among family members-income from the higher tax-payer to the lower rate payer-such as a spouse or children and thus reducing the overall tax a family pays. The Professional Corporation allows for multiple income splitting opportunities.
- Maintain full control by holding shares in a trust for kids less than 18 years of age
- The Issuance of Non-Voting shares to family members. Dividends up to $35,000 can be paid tax free (conditions apply) to children over 18.
- Full flexibility of shares: Option to arrange just dividend shares or growth shares, or combination of two
- Objective of shares issuance to others: tax savings by paying dividends to low rate shareholders
- Most beneficial to children over the age of 18 or spouse with little income. Dividends up to $35,000 can be paid tax free (conditions apply)
- Children less than age 18: “kiddie tax” minimizes most benefits. Customized planning required for children under 18.
- In some situations, use of $750K “Capital Gains Exemption” (“CGE”) offers significant tax savings
- On rolling-over existing practice to PC, shares will qualify for CGE
- “Crystallizing” CGE right after rollover can have estate-planning benefit: a reduced capital gain on death
- The ability to arrange an Individual Pension Plan “IPP”. HealthCare professionals have an opportunity to increase their contributions to a retirement program beyond regular RRSPs. These programs, “super-charged RRSPs”, allow for increased tax deductions to the PC as well as the ability to increase retirement funds as a perk that grow in a tax-free environment.
- Health Care Spending Account (HSA) or Private Health Services Plans (PHSP). These programs allow a healthcare professional and employees to pay for medical expenses through the PC, instead of individually. This results tax savings because the expenses are paid with pre-tax dollars, as opposed to after-tax insurance benefits premiums. There are many more medical expenses that qualify under a PHSP and there are no limits on the amount that can be claimed.
- Arrangement of a Hygiene Corporation: Ideal for income splitting with a spouse or a family member. Provides an additional small business deduction of $500,000 at a low tax rate of 19%.
- Family Members Salary. Family members can be paid a reasonable salary for work done on behalf of the practice, within certain parameters.
- Corporate Owned Life Insurance Life insurance can be owned and the premiums paid by the PC as opposed to being paid personally. This makes the payment of the premiums much less, net of tax considerations. In addition, the death benefit is paid tax-free (via a CDA credit) to the surviving beneficiaries, including your spouse.
- Ability to issue “Eligible Dividends”-which are taxed at lower rates than non-eligible dividends. There is significant benefit for the healthcare professional to taking dividends instead of salary if the PC’s income is $500K or less, and the professional requires more than the $118,000 of salary for meeting their living standards and personal spending.
- The ability to establish a Retirement Compensation Arrangement “RCA”. HealthCare professionals have an opportunity to increase their contributions to a retirement program beyond regular RRSPs. These programs allow for increased tax deductions to the PC as well as the ability to increase retirement funds as a perk that grow in a tax-free environment.
- PC’s, like any corporation with active business income and employees, can establish an Employee Profit Sharing Plan (EPSP), providing great benefit to employees, goodwill and retention.
Income SplittingClick here to expand
The essence of INCOME SPLITTING involves the legal shifting of taxable income among family members-income from the higher tax-payer to the lower rate payer-such as a spouse or children and thus reducing the overall tax a family pays.
A number of different techniques can be used to accomplish this objective; some simplistic in nature and others more sophisticated. The bottom line, though, is that ALL families consider deploying at least some income splitting strategy.
Some highly-effective income splitting strategies include:
- Spousal RRSPs
- Capital Gains Transfer & Capital Loss Transfer
- Second Generation Income to children
- Gifts to Children and Grandchildren
- Pension Splitting (CPP, OAS, GIS)
- Family Small Business
- Family Members Salary
- Estate Freeze
- Prescribed Family Loan
- Informal Trust
- Family Trust & Inter-vivos Trust
Pay a salary or consulting fee to family membersClick here to expand
If you or your spouse is a sole proprietor or partner in a business you can pay a portion of your profits out in a salary to a family member and then deduct the salary against your business income. The salary must be reasonable for services that were rendered. This strategy is particularly useful if the family member earned no income, since no personal tax is payable on the first $8,700 of personal income, hence your business will get a deduction and the family member will pay no tax.
Crystallization: Asset Freezing (Transferring assets at fair market value)Click here to expand
In some cases it may be beneficial to transfer assets to a lower-income family member if the asset is expected to earn income or grow in value in the future, since that future income or growth will be taxed at a lower rate. Types of assets could include: stocks, bonds, part ownership of a company, dividend-earning assets and real assets (i.e., Long-term assets that help earn income).
Small Business Corporations: Transfers or LoansClick here to expand
Canadian controlled private corporation (CCPC) or a Small Business Corporation (SBC) with all or substantially all (generally 90 per cent or more) of its assets being used in an active business carried on primarily in Canada: transfers or loans to an SBC will not give rise to attribution back to you even where your spouse or minor children may be shareholders directly or indirectly in the SBC. These companies may be exempt from attribution rules. Therefore, transfers to such entities allow income splitting and may also qualify for the $750,000 capital gains exemption.
Tax SheltersClick here to expand
A tax shelter investment is an investment that is protected from taxation or has preferential tax treatment. In order to seriously consider such an investment, you should be in the top marginal rate. These types of investments tend to be highly risky (in some cases, the government has provided preferential tax treatment for these investments to encourage investors to consider the investments; without these incentives, some of these investments tend to be too risky to induce people to invest in these areas).
Some of the most common tax-sheltered investments include:
- Whole and Universal Life Insurance (low-risk option)
- Mining Exploration, Oil and Gas Ventures
- Canadian Films and Video Production
- Labour Sponsored Venture Capital Corporations (LSVCCs)
- Limited Partnerships
Charitable DonationsClick here to expand
When a donation is made, you do not receive a tax deduction but instead you receive a tax credit. This reduces your tax bill. For the first $200 donated, you can claim a tax credit of 16% and for the amount of the donation that is over $200 you receive a tax credit of 29%.
Deductible Fees for InvestmentClick here to expand
Certain types of fees and charges that are paid by you when investing are fully tax deductible. Some of the more common include:
- safety deposit box charges
- bank charges
- fees for direct advice (specific to a particular investment)
- fees for administration and/or management of securities
Note: Fees commissions paid on the purchase or sale of investments are NOT tax deductible. Instead, commissions increase your adjusted cost base on the purchase of an investment, and will reduce your capital gain (or increase your loss) on the sale of an investment.
Private Health Insurance PremiumsClick here to expand
If private health insurance premiums are paid by your employer, then it is not a taxable benefit to you. Therefore, it is beneficial for the employer to be the sole contributor since the employer receives a deduction and the employee pays no tax.)
Dividend IncomeClick here to expand
Dividends are distributions of profits from a corporation to the owners (shareholders). A dividend can be from a preferred share or a common share-and usually is paid to you in the form of shares or in cash. Since Canadian corporations usually pay tax on profits before they are then distributed to shareholders as dividends, dividends from a Canadian corporation receive a more favourable tax treatment (the dividend tax credit) than interest income in your hands personally.
CWF Group lends clarity to these questions and so many more. To find out more click here to speak with one of our specialist.