Ottawa to close some tax loopholesBy Susan Yellin | March 23 2017 01:30PM
The federal government intends to close some tax loopholes and get rid of “inefficient” tax measures, but held back on a higher inclusion rate on capital gains in its budget.
More than half a billion dollars was set aside in the budget, released Wednesday, to hire more auditors for increased audit and compliance measures. It marks a good time for advisors to sit down with their clients and ensure that all tax strategies meet government rules and regulations, says Sterling Rempel, a certified financial planner and wealth and estate planning specialist in Calgary.
Use of private corporations to reduce taxes payable
Ottawa also signalled it will release a consultation paper in the next few months to prevent wealthy individuals from using private corporations to reduce their taxes payable. This will affect mostly family-owned businesses that have been able to “sprinkle” earnings to lower-earning family members.
“A business owner who has a family trust or has multiple family members as owners within the company now has the ability to distribute those after-tax corporate earnings as dividends to family members” such as a child who is in university or a non-working spouse, said Rempel. “If that’s taken away, that’s certainly one major private company tax planning strategy that would need to be reconsidered.”
The consultation paper will also look at holding a passive investment inside a private corporation, a tax advantage not available to all Canadians.
Phasing out Canada Savings Bonds program
With regards to removing inefficient tax measures, the government said it intends to phase out the Canada Savings Bonds program by discontinuing sales of new bonds this year, eliminate the public transit tax credit effective July 1 and do away with the tax credit for those making their first charitable donation.
There had been much ado that the inclusion rate on capital gains could be increased. But Rempel suggests the move may have been dampened by U.S. President Donald Trump and his intention to lower taxes on his side of the border. “To move Canada to a higher tax regime would be negative on a competitive standpoint.”