[Canada] Canadian Politics Redux

[crazy canuck]

Share the Wealth, CC.

I have already been since the Liberals took office, they almost immediately made changes to the way small cap corporations are taxed that adversely affected how I had structured my affairs.  Now I am waiting to see what comes out of the consultation phase for these legislative proposals.  The most worrying is that the way I have structured matters for my retirement might have to be redone since they are looking at how investment income held within a corporate structure will be taxed. 

[Grey Fox]

Should have never been allowed in the first place.

[crazy canuck]

You may be right, but it is still a kick in the pants to the change the rules just as I am in the last stretch before retirement.

[Grey Fox]

Yes, sucks.

[viper37]

You may be right, but it is still a kick in the pants to the change the rules just as I am in the last stretch before retirement.

We're talking 1% - 2% of your current wages in additional taxes?  With good planning, you can still dodge most of the taxes.  It will however affect a lot of SMB owners on the lower scale, like my father, who's not earning 800$/hour.

This is all smoke, as usual, for the Liberal party.  The only thing constant with this party is their disdain for French culture.

[crazy canuck]

You may be right, but it is still a kick in the pants to the change the rules just as I am in the last stretch before retirement.

We're talking 1% - 2% of your current wages in additional taxes?  With good planning, you can still dodge most of the taxes.  It will however affect a lot of SMB owners on the lower scale, like my father, who's not earning 800$/hour.

This is all smoke, as usual, for the Liberal party.  The only thing constant with this party is their disdain for French culture.

I am not sure where you are getting the 1-2% from.  You might be confusing the increase in income tax to incomes over 200k with the changes to small cap corporations.  What is being discussed is not "wages" that an individual tax payer pays on the income they receive, but the rules around how small cap companies are taxed.   And unless your father is a professional (doctor, lawyer, dentist etc) the changes being discussed now will not effect him at all.

[viper37]

I am not sure where you are getting the 1-2% from.  You might be confusing the increase in income tax to incomes over 200k with the changes to small cap corporations.  What is being discussed is not "wages" that an individual tax payer pays on the income they receive, but the rules around how small cap companies are taxed. 
And unless your father is a professional (doctor, lawyer, dentist etc) the changes being discussed now will not effect him at all.

I used wages in the loosest sense possible, because lawyers, doctors, etc usually charge by the hour of work done.  The fact that you incorporate to lower the taxes paid on these wages is another matter that does not really change the nature of the operations, but I recognize I should have been more precise.

Trudeau made many changes:
1- Who can be a corporation, and for that, the decision will be based on the number of employees hired by the company.  For one of his companies, that could cause problems, but mainly for me, I guess (status is yet undertemined, work in progress).
2- Revenue splitting: His g/f is retired, he splits is income with her, lowering his taxes by a few bucks each year.  That will be gone by next year.
3- Other more specific changes to professionals, and on that, you are right, he is not affected, nor am I.
4- Elimination of the proposed reduction in corporate tax rate for SMBs, and it will likely be increased by the 1st year of their second mandate (because, yes, he is going to be re-elected, his anti-French and anti-Quebec attitude gains him a lot points in Canada everytine he blabbers about it).

What the Federal governement expect to gain with all these measures is 250M$/year.  That's not a lot of money considering the number of doctors, dentists, optometrists, lawyers, etc in Canada.

Either only a very few of these professionals used incorporation to dodge taxes, in wich case, it amounts, again, to leftist propaganda, like tax evasion, where you try to make us believe a government management problem is due to evil corporations/rich people not paying their due share while only a few really cheat; or, the amount of taxes you really save by doing this is not as great as they think. 

If you are incoporated, you need to take your money out of the company to reach your pocket, so you can buy a house, a car, etc.  So you have either wages, wich will be deducted from your business income, or you have didivends, taxed less in your hands, but will not reduce the amount of taxable income for the business.

Now, if we're talking really complex schemes, acquiring and selling work of art for (fake) low prices and selling them for inflated prices as a way to not have taxes on capital gains, we are entering the realm of fiscal fraud and money laundering, and that's an entirely different matter, a criminal one, not a social justice one.

[crazy canuck]

I don't think you really understand what the proposals are getting at so I will use a simple example.

Lets say a doctor earns 600k per year.  If the doctor takes that all as personal income the personal income tax payed will be somewhere in excess of 50% for the amount over 200k. Now lets assume the good doctor only needs about 200k to live on.  If the doctor received competent tax advice, they have incorporated and the corporation earns the 600k.  The doctor takes the 200k in salary - avoiding the highest tax bracket.  And the corporation pays about 15% on the remaining 400k.  The good doctor then invests the after tax corporate income within the corporation.  One day the doctor retires, and continues to draw out salary from the corporation but now at a lower amount than 200k per year and so pays less income tax.

If the government changes the rules so that the doctor will now pay the equivalent of the personal tax rate on all the income the corporation earns - including the investment income - the increase in taxes the doctor will be paying will be a lot more than the 1-2% you thought was an accurate estimate.  And I haven't even calculated in the tax saving from the kind of "income sprinkling' the government was talking about.

The government has said these changes will impact about 50,000 families.  the 230 million estimate they have involves only the provisions they have in mind to address the income sprinkling.  the estimate doesn't include taxing corporate investment income.

If you are incoporated, you need to take your money out of the company to reach your pocket, so you can buy a house, a car, etc.  So you have either wages, wich will be deducted from your business income, or you have didivends, taxed less in your hands, but will not reduce the amount of taxable income for the business.

No, the corporation buys the car and gives a loan to buy the house.

[viper37]

I don't think you really understand what the proposals are getting at so I will use a simple example.

Lets say a doctor earns 600k per year.  If the doctor takes that all as personal income the personal income tax payed will be somewhere in excess of 50% for the amount over 200k. Now lets assume the good doctor only needs about 200k to live on.  If the doctor received competent tax advice, they have incorporated and the corporation earns the 600k.  The doctor takes the 200k in salary - avoiding the highest tax bracket.  And the corporation pays about 15% on the remaining 400k.  The good doctor then invests the after tax corporate income within the corporation.  One day the doctor retires, and continues to draw out salary from the corporation but now at a lower amount than 200k per year and so pays less income tax.

Hmm, I haven't seen it that way.  Well, I had no figure a professional would give himself a much lower salary than what he earns for his services.

And I am unsure about this plan to consider all income earn as salary immediatly, it is what I have read.
I agree with you in that case that it will cost them a lot.

If the government changes the rules so that the doctor will now pay the equivalent of the personal tax rate on all the income the corporation earns - including the investment income - the increase in taxes the doctor will be paying will be a lot more than the 1-2% you thought was an accurate estimate.  And I haven't even calculated in the tax saving from the kind of "income sprinkling' the government was talking about.

Still, the government talks about "getting back 250M$ on income taxes" with that measure.  It can't be exactly as you describe.

I shall wait until I receive more fiscal information to comment.

If you are incoporated, you need to take your money out of the company to reach your pocket, so you can buy a house, a car, etc.  So you have either wages, wich will be deducted from your business income, or you have didivends, taxed less in your hands, but will not reduce the amount of taxable income for the business.

No, the corporation buys the car and gives a loan to buy the house.
[/quote]

You need a personal car, otherwise, if you only have one car, it will be considered a taxable advantage.
And you need to tax the corporation on the loan for interests presumably charged, unless I am mistaken?

[crazy canuck]

Hmm, I haven't seen it that way.  Well, I had no figure a professional would give himself a much lower salary than what he earns for his services.

And I am unsure about this plan to consider all income earn as salary immediatly, it is what I have read.
I agree with you in that case that it will cost them a lot.

If a person needs to spend all their income to support their lifestyle then incorporation makes no sense.  The main purpose of incorporating is to put savings into a tax efficient vehicle.  That is the reason the announcement that the government is considering new rules about how that investment income will be treated raises concerns.

Still, the government talks about "getting back 250M$ on income taxes" with that measure.  It can't be exactly as you describe.

This might be a language issue.  The government is not talking about getting 250 from "income taxes" but instead putting an end to income sprinkling.  Those to two concepts are related but different.

You need a personal car, otherwise, if you only have one car, it will be considered a taxable advantage.
And you need to tax the corporation on the loan for interests presumably charged, unless I am mistaken?

No, you don't need a personal car.  So long as the vehicle is used as for business purposes it can also be used for personal purposes. You do not pay tax on the loan rather market rate interest is paid to the corporation.  It is only if the loan is not bona fide that it becomes taxable.

[Jacob]

I don't think I'll be taking tax advice from Viper.

[viper37]

No, you don't need a personal car.  So long as the vehicle is used as for business purposes it can also be used for personal purposes.

10% max.  And if you have only one car, the Agency will assume you are using it for more than 10% personal use, and they will tax you.  And you're limited to 35k$ deductible, I think, for cars and promenade vehicles.  At least for GST/HST that's the limit.

You do not pay tax on the loan rather market rate interest is paid to the corporation.  It is only if the loan is not bona fide that it becomes taxable.

that's what I meant: even if you don't pay market rate interests, it is assumed you paid it, and it becomes a taxable income for the business.

[viper37]

I don't think I'll be taking tax advice from Viper.

and you shouldn't   Nor should you from anyone here.

[Valmy]

Really? I think I can trust the honorable actuaries of Languish.

[Monoriu]

I am not a big advocate of paying for expert advice, but tax is one of the few areas where it maybe worth it.