What tax questions should your clients be revisiting?

As with any aspect of finance, it’s best to do tax planning by looking ahead. Proposed changes to corporate taxation are still up in the air, but that shouldn’t stop Canadians — and especially business owners — from preparing early.

“[T]his year, it's more important than ever for Canadians to understand how the federal government's private company tax reform proposals might impact their bottom line,” said David Steinberg, EY Canadian tax leader for Private Client Services.

With that in mind, EY suggested some areas for Canadians to revisit when planning their tax returns for 2017 and beyond. The first concerns the federal government’s proposal to limit income-splitting opportunities from private corporations starting next year. Because of that, some small-business owners may want to consider distributing dividends among adult family members before the year ends.

Next, the tax rate applied to non-eligible dividend income will be raised for dividends received starting January 1. Those who can may want to collect more non-eligible dividends before then, making sure to weigh savings of the lower non-eligible dividend tax rate against the tax-deferral benefit of retaining earnings within the corporation.

And given the federal proposal to increase tax on passive earnings past $50,000 — with draft legislation expected along with the 2018 federal budget in spring — business owners may want to speak with tax advisors to determine optimal grandfathering strategies.

Reviewing capital-gains transactions could also be crucial. While the government has said it won’t push through with proposals to restrict access to the lifetime capital-gains exemption and other capital-gains planning, a review could nonetheless help clients save on future returns.

Clients and their advisors should also determine whether tax-deductible or tax-creditable expenses would be worth more if counted this year or next. TFSA and RRSP contributions for this year, as well as prior non-contributory years, should be likewise maximized; clients can maximize tax-free earnings from contributions, as well as benefits from RRSP withdrawals under the Home Buyers’ Plan, by conducting the transactions in January. And those with RESPs for their children or grandchildren should also make their contributions before the end of the year.

Find out how to minimize tax on RRSP withdrawals and how much those taxes will cost in this article.

Those with debt should also remember that interest on funds borrowed for personal purposes is not deductible. That means where possible, it may be best to use available cash to repay personal debt before repaying investment or business loans.

The end of the year is also a good time for tax-loss harvesting. Investment portfolios should be reviewed for chances to use accrued losses against realized gains, and for realized losses to carry forward.

Finally, those with estate plans in place may want to update their will, determine any changes to their life-insurance needs, or consider an estate freeze to minimize taxes on death or probate fees.


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