Tax Tips 2017€¦ · tips from our professionals and highlights from Crowe Soberman events. In this issue: Investment income . 3. Capital gains and losses. 4. Charitable donations

TAX TIPS2017

Smart Decisions. Lasting Value.

Audit | Tax | Advisory

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events.

In this issue:

Investment income 3

Capital gains and losses 4

Charitable donations 4

Interest deductibility 5

Tax-Free Savings Account (TFSA)

5

Pensioners, retirees & pre-retirees

6

If you have disabled or infi rm dependents

6

If you have young children 7

If you have your own corporation

9

If you are self-employed 10

If you are employed 11

If your employer provides you with an automobile

12

Working in the U.S. 12

Income splitting with familymembers - Other opportunities

12

Highlights of the Canada Pension Plan (CPP) and Old Age Security (OAS)

14

Investment income - A closer look...

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Tax Tips was prepared for the general information of our clients and other friends of Crowe Soberman LLP. Specifi c professional advice should be obtained prior to the implementation of any suggestion contained in this publication.

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Tax Tips2017

32 Easily adaptable tax ideas for you and your family

Our annual Tax Tips can assist you in your tax planning. It presents some quick ideas and strategies. Please take the time to review your 2017 tax situation and call us for specific recommendations tailored to meet your needs. We will be pleased to work with you on these and other tax-savings ideas.

Investment income

1. Tax rates are significantly more favourable for dividend income than interest income.

■ The top personal tax rates in Ontario for 2017 are as follows:

2017

Income 2017

For taxable income over $142,354 to $150,000



For taxable income over $220,000

■ Eligible dividends (generally,dividends received from publiccorporations)

■ Non-eligible dividends (generally,dividends received from smallbusiness corporations)

■ Interest income

■ Capital gains

29.52%

36.97%

46.41%

23.20%

31.67%

38.79%

47.97%

23.98%

37.19%

43.47%

51.97%

25.98%

39.34%

45.30%

53.53%

26.76%

■ The top personal tax rates are not expected to change for 2018, except for the non-eligible dividend rates. The topmarginal rate for non-eligible dividends will increase from 45.30 per cent to 45.74 per cent in 2018 and 46.75 percent in 2019.

■ Re-evaluate your investment strategy by comparing the pre-tax dividend rates with the pre-tax interest rates usingthe chart provided on page 15.

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■

Did you know?In October of 2017, the

Government introduced proposed

rules surrounding the earning

of investment income through

a private corporation. These

rules may trigger adverse

tax consequences when a

corporation that has paid tax at

the small business deduction

rate, or the general business rate

of 26.5 per cent (Ontario) earns

more than $50,000 of investment

income on new invested after-tax

business profits. According to the

proposals released by the Liberal

Government, existing investments

that are held in the corporation

before the effective date of the

rules, will be grandfathered from

these new rules. We expect draft

legislation to be released by early

2018.

2. Defer tax on interest to thefollowing year by investing fundsfor a one-year term ending in thenext calendar year.

3. Defer purchases of mutual fundsuntil early in the next calendaryear to minimize taxable incomeallocated in the current year fromthe mutual fund.

4. Existing holding companiesthat have built up refundabledividend tax should considerpaying dividends to recover thistax. Depending on its year-end,the company may have up to 24months to enjoy the benefits of thetax refund before the shareholderis required to pay personal taxon the dividend. The individualcircumstances should be reviewed.

Capital gains and losses

5. If you own qualified small businesscorporation (QSBC) sharesor qualified farm and fishingproperty, you may benefit from thelifetime capital gains exemptionof $835,716. The exemption isindexed to inflation annually.

■ The Government has maintained theexemption of $1,000,000 for qualifiedfarm and fishing property. Theexemption is available on dispositionsmade on or after April 21, 2015.

6. Consider realizing accrued losseson investments to shelter capitalgains realized this year and/or inthe previous three years.

■ Note that a loss realized from thedisposition of an investment maybe denied if you repurchase theinvestment within a short period oftime.

7. If you have significant trading

activity, your sales of securities may be considered a business for income tax purposes.

If your sale of securities is considered a business, your profits will be fully taxable as income (instead of being considered capital gains taxable at 50%), and your losses will be fully deductible against any source of income.

■ If you are concerned about yoursales of securities being considereda business, you can consider filing aone-time, non-revocable election withthe Canada Revenue Agency (CRA).

■ This election will treat all of yourgains from dispositions of Canadiansecurities as capital gains (and all ofyour losses as capital losses) for thecurrent year and all future years.

Charitable donations

8. Consider donating publicly-tradedsecurities instead of cash.

■ A tax-advantaged gift of securitiescan be made to a private foundationas well as to public charities. Anyappreciation in the value of thesecurities will not be subject tocapital gains tax if the securities aredonated to:

■ A registered charity; or

■ A private foundation after March18, 2007. There are special

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rules that apply to persons not dealing at arm’s length with the foundation. For more information, please contact us.

■

■

■

■

The donation credit (for individuals) ordeduction (for corporations) continuesto be available for the fair marketvalue of the securities donated.

To avoid capital gains tax on the appreciated securities, the actual securities must be transferred to the charity or foundation.

Similar rules will apply to a capital gain on ecologically-sensitive land donated to a conservation charity.

Due to 2011 changes to the tax rules,

the donation of flow-through securities may trigger a capital gain to the donor.

Interest Deductibility

9. Where possible, maximize interestdeductions by structuring orarranging your borrowings, first forbusiness or investment purposes,and then, for personal use.

10. Where certain business or capitalproperty (e.g., shares, but not realestate or depreciable property) islost or ceases to earn income, theinterest incurred on the relatedborrowed money may in somecases continue to be deductible.

Tax-Free Savings Account (TFSA)

11. Beginning in 2016, Canadian res-idents 18 years of age and oldercan each contribute up to $5,500annually, plus any unused contri-bution room from previous years,to a tax-free savings account.Going forward, the contributionlimit will be indexed to inflation androunded to the nearest $500.

■ Contributions to a TFSA are notdeductible for income tax purposes.

■ Interest on money borrowed to investin a TFSA is not tax deductible.

■ Contributions to and income

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earned in a TFSA are tax-free upon withdrawal.

■ You can give money to your spousefor a TFSA contribution, and theincome earned on the contributionsin your spouse’s TFSA will not beattributed back to you.

■ You cannot contribute more than yourTFSA contribution room in a givenyear, even if you make withdrawalsfrom the account during the year. Ifyou do so, you may be subject to apenalty tax for each month that youare in an excess contribution position.

Quickfacts for 2017The maximum RRSP contribution

limit is $26,010.

The amount of earned income

required in 2017 to maximize your

2018 RRSP contribution room is

$145,722 (the maximum RRSP

contribution limit for 2018 is

$26,230).

The small business deduction limit is

$500,000.

Pensioners, retirees and pre-retirees

12. Income splitting opportunity:

■ Individuals receiving pension incomethat qualifies for the pension creditcan allocate up to half of thisincome to their spouse or common-law partner. A determination ofthe optimal allocation should beconsidered in tandem with thecouple’s continued ability to qualifyfor Old Age Security payments andcertain personal tax credits.

13. An individual’s RRSP mustbe converted to a RegisteredRetirement Income Fund (RRIF)or be used to acquire a qualifyingannuity by the end of the year inwhich the individual turns 71.

■ An individual who turns 71 in 2016can make RRSP contributions by theend of 2016, where contribution roomis available.

■ An individual can continue to make acontribution to a spousal RRSP untilthe end of the year in which his or herspouse turns 71, where contributionroom is available.

■ For 2015 and later years, the Govern-ment has introduced a reduction in theminimum amount that must be with-drawn from an RRIF for a holder whois over the age of 71. The new RRIF

factors will permit holders to preserve more of their RRIF savings in order to provide income at older ages.

If you have disabled or infirm dependents

14. The Registered Disability SavingsPlan (RDSP) is a savings planthat is intended to help parentsand others save for the long-termfinancial security of a person whois eligible for the Disability TaxCredit.

■ Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59 years of age.

■ To help you save, the Government pays a matching grant of up to$3,500. You are allowed to carry forward unused grant entitlements for up to ten years.

■ Contributions that are withdrawn are not included in the income of the beneficiary, although the Canada dis-ability savings grant, Canada disability savings bond, and investment income earned in the plan will be included in the beneficiary’s income for tax pur-poses when paid out of the RDSP.

■ There is no annual limit on amounts contributed to an RDSP of a particular beneficiary, but the overall lifetime limit is $200,000.

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■ A deceased individual’s RRSP orRRIF can be transferred tax-free intothe RDSP of a financially dependentinfirm child or grandchild.

15. For 2016 and subsequent taxyears, the Government hasimplemented a new non-refundableHome Accessibility Tax Credit.

■ The tax credit is available for eligibleexpenses incurred in making a homemore accessible to individuals aged65 or older or to individuals who aredisabled or infirm.

■ Either the individual who incurred theexpenses or the individual for whomthe expenses are made can claim thetax credit. The individual who incurredthe expenses can only claim the taxcredit in respect of expenses incurredfor his or her spouse or common-law partner, or for disabled or infirmdependants.

■ You can claim up to $10,000 ineligible expenses under the HomeAccessibility Tax Credit, resulting in anon-refundable tax credit worth up to$1,500. Expenses eligible for

the claim must be permanent and non-routine renovations to the home. The alterations must allow the individual for whom the expenses were incurred to be mobile within the home and/or reduce the risk of harm to the individual within the home.

If you have young children

16. Save for your child orgrandchild’s education with aRegistered Education SavingsPlan (RESP).

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■ An RESP is a trust arrangementthat earns tax-free income to be used to fund the cost of a childor grandchild’s post-secondary education. Contributions to an RESP are not deductible for tax purposes and withdrawals of capital from the RESP are not taxed. The beneficiary is taxed on the income portion when withdrawn from the RESP for the purpose of funding his or her post-secondary education. While at school, the child or grandchild tends to have relatively low sources of other income, and, as a result, the income is usually taxed at lower rates, if at all.

For RESP contributions in 2017:

■ There is no annual contribution limit;

■ The lifetime contribution limit is$50,000 per beneficiary; and

■ A federal Government grant of 20%of annual RESP contributions is available for each beneficiary under the “Canada Education Savings Grant.” The maximum annual RESP contribution that qualifies for the federal Government grant is $2,500.

17. Maximize child-care expensededuction.

■ The maximum amounts deductiblefor child-care expenses are $11,000for a disabled child, $8,000 forchildren under age seven, and $5,000for other eligible children (generally,children aged 16 and under). In mostcases, the spouse with the lower net

income must claim the child-care expenses against his or her earned income.

18. Apply for the Canada ChildBenefit (CCB)

■ The Government has merged theUniversal Child Care Benefit (UCCB)

Did you know?On July 18, 2017, the Government

announced proposed changes to

the tax on split income (TOSI) rules

which may impact the ability to split

dividend and other types of income

(paid by private corporations) with

adult family members. The proposed

TOSI rules aim to curtail the splitting

of income with related family mem-

bers who have not otherwise made a

meaningful contribution to the busi-

ness, be it a labour contribution, capi-

tal contribution, and/or an assumption

of business risks. The Government

confirmed its intention to enact these

proposed rules to be effective for

2018 and later taxation years. We

expect final legislation to be released

by the end of 2017 or early 2018.

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and Canada Child Tax Credit (CCTB) in to a new Canada Child Benefit (CCB). The CCB is a tax-free payment based solely on the family’s income from the previous year. The program provides parents with monthly benefits of up to $533.33 ($6,400 annually) for children aged six and under and up to $450.00 ($5,400 annually) for children aged 6 to 17.

■ It is expected that families makingbelow $150,000 will receive more inmonthly child-benefit payments thanthey were otherwise receiving underthe UCCB and CCTB programs.However, the benefit is graduallyclawed back for families makingover $30,000 and fully eliminatedfor families making over $200,000annually.

■ The application for the CCB can bemade online through the CRA “MyAccount” when you complete yourchild’s provincial birth registrationform or by completing Form RC66.More information can be found athttp://www.cra-arc.gc.ca/bnfts/ccb/pplctn-eng.html.

■ If your family already receives theCCTB or UUCB, an application forthe CCB is not necessary but bothparents must have filed a tax return.

■ The CCB is effective for 2016 andsubsequent taxation years.

If you have your own corporation

19. Consider your optimum salary/dividend mix to achieve lessoverall tax:

■ Salary will qualify you and other familymembers active in the businessfor RRSP contributions, CanadaPension Plan (CPP) contributions,and child-care deductions. Dividendswill not qualify an individual for thesecontributions or deductions.

■ Dividends, on the other hand, maycost the family unit less in currenttaxes. Each family member, over 17years of age and receiving non-eligibledividend income of approximately$33,308 or less, or $51,635 or lessof eligible dividends, from taxableCanadian corporations, will pay littleor no income tax (a small OntarioHealth Tax premium may apply). Thetax on split income eliminates thetax benefits of paying dividends tochildren under 18 years of age. Notethat 2017 may be the last year to splitdividend income with family memberswho are not active in the business. Asdiscussed previously, the proposedchanges to the TOSI rules will curtailthe tax benefits. We expect thenew rules to apply to the 2018 andsubsequent tax years.

■ Consider accessing funds from the

corporation that can be withdrawn tax-free. For example, repay shareholder loans, return capital to

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shareholders up to the lesser of the paid-up capital and the adjusted cost base of the shares, or roll in personal assets with a high cost base to the corporation on a tax-free basis to extract the cost base of the assets on a tax-free basis.

20. Defer income that is not requiredpersonally for longer period:

■ If you do not require cash from yourcorporation to spend personally,consider keeping the funds investedin your corporation and defer theextra dividend tax payable on thewithdrawal of the funds.

21. Dividend income splitting withadult children:

■ If you have children who are 18 yearsof age or older and for whom you arecurrently funding expenses, considerreorganizing the shareholdings ofyour corporation to enable incomesplitting with your children. A reorga-

nization would involve your children (or a trust for their benefit) receiving dividend-paying shares of the corpo-ration. If your children do not already earn income that is taxed at the top marginal tax rate, then the dividend income will be taxed more favourably in their hands.

■ Given the proposed tax changes inrespect of dividend income splitting(see above), which we expect to beeffective January 1, 2018, consider-ation should be given to maximizing2017 income splitting dividends as2017 will be the last year to takeadvantage of the lower marginal taxrates enjoyed by the recipient individ-uals.

22. Consider instalments for 2018:

■ The threshold above which corpo-rations must pay income tax, GSTand source deductions instalments is$3,000. The threshold will be basedon 2017 tax amounts payable.

■ Certain Canadian-controlled private corporations are allowed to make quarterly, instead of monthly, income tax instalments. To qualify, certain conditions must be met, including the following criteria relating to the 2017 taxation year:

■ The corporation has been in perfect compliance in the previous 12 months;

■ The corporation was entitled to the small business deduction;

■ The taxable income of the associated group did not exceed$500,000; and

■ The taxable capital of the associated group did not exceed$10 million.

■ Instalment planning for 2018 can be addressed during 2017 by meeting the conditions where applicable.

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If you are self-employed

23. If you have a home office andyou meet certain conditions, youcan deduct eligible home officeexpenses, including a portion ofyour mortgage interest, homeinsurance, property taxes,utilities and minor repairs.

24. Consider the potential benefits ofincorporating your business.

If you are employed

25. Reduce tax withheld at source:

■ If you will have large tax deductionsavailable to you (e.g., RRSP contribu-tions, tax shelters, interest, business

losses, work related car expenses, tuition credits, or alimony), apply in advance to the CRA for a reduction of the payroll withholdings that are withheld from your salary.

26. Minimize taxable employeebenefits:

■ Arrange to receive non-taxablebenefits from your employer insteadof taxable benefits where possible.Examples of non-taxable benefitsinclude: employer contributions to aregistered pension plan (the pensionis taxable when you receive it); andcontributions to a “private health ser-vices plan,” such as those coveringmedical expenses, hospital chargesand drugs not covered by publichealth insurance and dental fees.

In October of 2017, the Govern-

ment announced a reduction to

the small business deduction rate

effective January 1, 2018. The rate

will decrease from 10.5 per cent

to 10 per cent for 2018, and will

decrease even further to 9 per cent

for 2019. Ontario also announced a

reduction to the small business rate

to 3.5 per cent (from 4.5 per cent)

on January 1, 2018. These rate

reductions result in a larger deferral

of after-tax business profits in the

corporation that can be reinvested

in the business. Thus, the com-

bined (federal and Ontario) small

business rate will be as follows:

Year Tax Rate

2017 15.0%

2018 13.5%

2019 12.5%

Tax Tips2017

■ If you received interest-free or low-interest loans from your employer, theloans will generally result in a taxablebenefit.

■ Some of the benefit can be offsetby an “interest” deduction if theloans are used for certain purpos-es.

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■ If not deductible, be sure to payany interest payable on the loanfor 2017 by January 30, 2018 toreduce or eliminate your taxablebenefit.

■ Consider renegotiating anyhome purchase loans from youremployer in order to minimizetaxable benefits by “locking in” theloan at a lower prescribed interestrate for a five-year term.

If your employer provides you with an automobile

27. The taxable benefit is based onoriginal cost of the automobileand does not decrease as the carages. Consider purchasing thecar from the company by way ofan interest-free loan from youremployer and personally claimingdepreciation on the car.

■ Avoid employer-owned vehiclescosting over $30,000.

■ You can reduce the taxable benefitif your automobile is used primarily(generally, greater than 50%) forbusiness purposes and by keepingyour personal use to less than 20,000kilometers per year.

Working in the U.S.

28. A Canadian resident who works inthe U.S. may deduct contributionsmade to a U.S. pension plan,under certain circumstances, upto the taxpayer’s RRSP deductionlimit.

■ This will reduce the individual’sunused RRSP contribution room.

Income splitting with family members – other opportunities

Consider the following legitimate means

of shifting income to family members whose taxable income is below the lowest tax bracket, approximately $45,916. This will allow them to take advantage of certain non-transferable credits as well as lower tax rates.

29. Income splitting with children overthe age of 17 (“adult children”):

■ Shift investment income by giftingmoney to your adult children or to atrust for their benefit, if you wish tomaintain control.

■ Lend funds to or purchase shares ina corporation whose shareholders areyour adult children.

30. Income splitting with adult or minorchildren:

■ Purchase appreciating assets in thenames of your children regardless oftheir ages. Capital gains will be taxed intheir hands, not yours.

■ Lend money to your children with actualinterest payable at the prescribed rate.Earnings in excess of this rate will betaxed in their hands.

31. Income splitting with your spouse orcommon-law partner:

■ Lend money to your spouse orcommon-law partner to earn businessincome.

Budget 2017 introduced clarifications

to the rules surrounding control of a

corporation for tax years that begin

after March 22, 2017. The test to

determine control has been widened

greatly to consider circumstances,

generally, where an individual

exercises operational control of

the business. What this means is

that a related person may factually

control the corporation through their

operational decision-making even

though they may not own shares of

the corporation or sit on the board of

directors. This can result in adverse

tax consequences and further tax

advice should be sought should you

determine your corporation is at risk.

Did you know?

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■ Have the higher-income spouse or common-law partner incur all household expenses, thus allowing the lower income person to acquire investments, which could be taxed at a lower rate.

■ Lend money to your spouse or common-law partner with actual interest payable at the prescribed rate. Earnings in excess of this rate will be taxed in your spouse or common-law partner’s hands.

32. File and pay your taxes on time

■ Even if you are receiving a refund, you should file your taxes on time. Filing on time avoids the possibility of late-filing penalties that may be applicable on CRA reassessments.

■ The deadline for filing your 2017 personal tax return is Monday, April 30, 2018. If you, or your spouse or common-law partner, are self-employed, the deadline for filing your tax return for 2017 is extended to Friday, June 15, 2018. Regardless of your filing due date, if you have a tax balance owing for 2017, you still have to pay the balance due on or before April 30, 2018.

■ The penalty for late filing your return is 5% of the unpaid taxes, plus an additional 1% for each complete month your return is late (up to 12 months). Penalties are higher for repeat offenders or gross negligence omissions.

Did you know?Federal Budget 2017 eliminated

the ability to claim the public tran-

sit credit for the use of public tran-

sit services after June 2017. This

tax credit allowed individuals to

claim expenses such as monthly

TTC metro passes, and elec-

tronic payment cards if you make

at least 32 one-way trips over a

maximum of 31 consecutive days.

You will be able to claim a public

transit credit for eligible expenses

paid from January 1, 2017 to June

30, 2017.

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Highlights of the Canada Pension Plan (CPP) and Old Age Security (OAS)

Canadian Pension Plan (CPP)

Effective January 1, 2012, there have been some noteworthy changes to the CPP, which include the following:

1. If you are an employee between theages of 60 and 65 and you are stillworking, you must continue to contrib-ute to the CPP even if you are alreadyreceiving a CPP retirement pension.

2. If you are an employee between theages of 65 and 70 and you are stillworking, you can choose to continueto contribute to the CPP or you canopt out of making these contributions.

3. Any contributions you make to theCPP, regardless of your age, willincrease your CPP benefits even if youare already receiving a CPP pensionbenefit.

4. You will be able to receive your CPPretirement pension without any workinterruption.

5. Your employer must match your CPPcontributions in each of the scenariosdescribed in (1) and (2) above. Youremployer must make these contri-butions regardless of whether youare already receiving a CPP pensionbenefit.

Old Age Security (OAS)

1. The value of the Old Age Security(OAS) benefit for eligible seniors overthe age of 65 is approximately $6,880per year (indexed quarterly for infla-tion) but is generally reduced wherenet income exceeds $73,756 and iscompletely eliminated where incomeexceeds $119,512.

2. Beginning July 1, 2013, you maychoose to delay receipt of your OASfor up to five years beyond the normalbenefit start date of 65, in exchangefor an increased monthly pension of0.6% (up to a total of 36% annually) foreach month that the benefit is delayed.

3. If you have already started receivingOAS payments but would like to ben-efit from the deferral, you can write toService Canada to request a cancel-lation of your OAS pension, providedyou have been receiving the pensionbenefits for less than 6 months, butyou will have to repay the benefits youhave received to date.

Did you know?The Ontario Government has

abandoned the proposed “Ontario

Retirement Pension Plan” in

exchange for the new CPP regime.

Beginning in 2019, the CPP con-

tribution rates will be gradually

increased from the current 4.95%

to 5.95% by 2025. This is an effort

by Ontario to ensure that retirees

will have sufficient income past

retirement in case they were unable

to save during their working years.

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It may be a good time for you to consider whether your investment income is tax efficient and consider investment alternatives.

The table below has been prepared to assist you in this matter. It assumes that your investment goal is to earn an after-tax rate of return of 5%.

It compares the pre-tax yield required to achieve a 5% after-tax rate of return by earning:

Investment income - A closer look…1. Interest income;

2. Eligible dividends (generally dividendsreceived from public corporations); or

3. Non-eligible dividends (generallydividends received from small businesscorporations).

Did you know?

U.S. social security benefits received

may be taxable at a lower effective

rate. Eligible Canadian residents

are allowed in addition to the 15%

deduction permissible against U.S.

social security income, an additional

35% deduction for a total deduction

equal to 50% of the benefits.

You are eligible for the enhanced

deduction if you have been resident

in Canada and receiving U.S. social

security benefits continuously since

before 1996 or you are receiving

these benefits in respect of your

deceased spouse or common-law

partner who received benefits prior

to 1996.

If your total taxable income is:

The pre-tax rate of return required to achieve a 5% after-tax rate of return is approximately:

If you receiveinterest income

If you receiveeligible dividends

If you receivenon-eligible dividends

Between $1,000 and $45,916 5% - 6.6% 5% 5% - 5.6%

Above $45,916 but below $91,831 7.1% - 8.1% 5.3% - 6.1% 6.1% - 6.9%

Above $91,831 but below $142,353 8.8% 6.7% 7.5%

Above $142,353 but below $150,000 9.3% 7.1% 7.9%

Above $150,000 but below $220,000 9.6% 8% 8.8%

Above $220,000 10.8% 8.2% 9.1%

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