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Jack Mintz: If Trudeau ever accepts reality, here’s how he can save Canada’s competitiveness

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U.S. tax reform has changed everything — even if the prime minister refuses to believe it. Justin Trudeau evidently missed the news that companies in the U.S. have been using the sudden shift to lower corporate taxes to shower bonuses and raises on workers, and plowing yet more investment into new productivity and growth. In his speech to the World Economic Forum in Davos Tuesday, Trudeau offered his own ill-informed approach, saying he would refuse to try competing with U.S. business tax cuts because “People have been taken advantage of, losing their jobs and their livelihoods … (as) companies avoid taxes and boost record profits with one hand, while slashing benefits with the other.”

This is no time for clapped-out anti-corporate cant. If Canada fails to respond to America’s resurgent competitiveness, it’s at our peril. The old rules no longer apply. Pre-2018, companies looking to invest in North America knew they had a business tax advantage in Canada, even though it suffered from having smaller market than the U.S., a weaker labour pool and colder climate. With NAFTA, businesses operating in Canada could also count on decent access to the U.S. market, despite all the border frictions that come from dealing with two different regulatory systems.

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A key tax-splitting interest rate is about to double

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Investors who wish set up a prescribed-rate loan to split investment income with a spouse, common-law partner or even their kids need to act quickly as the prescribed interest rate is set to double to two per cent on April 1, 2018 as a result of Tuesday’s Treasury Bill auction yield.

The prescribed rates are set by the Canada Revenue Agency (CRA) quarterly and are tied directly to the yield on Government of Canada 90-day Treasury Bills, albeit with a lag. The calculation is based on a formula in the Income Tax Regulations, which takes the simple average of three-month Treasury Bills for the first month of the preceding quarter rounded up to the next highest whole percentage point (if not already a whole number).

To calculate the rate for the upcoming quarter (April through June 2018), we look at the first month of the current quarter (January) and take the average of January’s T-Bill yields, which were 1.17 per cent (Jan. 9, 2018) and 1.20 per cent (Jan. 23, 2018). That average is 1.185 per cent but when rounded up to the nearest whole percentage point, we get 2 per cent for the new prescribed rate for the second quarter of 2018.

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Why it's time to pay attention to — and fix — the marginal effective tax rate, especially for families

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There may not be much sympathy out there for the top one per cent high-income earner who, in 2018, will face a marginal tax rate of over 50 per cent in more than half the provinces in Canada. But there should be some attention given as to why a lower-earning parent of a dual-earning couple, with two kids and a combined family income of $50,000, can face a marginal effective tax rate of over 70 per cent.

To better understand what’s going on here, we first need to revisit the concept of a statutory tax rate and compare that to your marginal and average tax rates. Then we can look at your marginal effective tax rate (METR) and participation tax rates (PTR), two concepts highlighted in a new report out this week from the C.D. Howe Institute entitled, “Two-Parent Families with Children: How Effective Tax Rates Affect Work Decisions.”

In the report, researcher Alexandre Laurin finds that working parents with children — particularly low-income families — “face prohibitive tax rates that discourage taking on extra employment to get ahead … (with) mothers and poorer families … the most adversely affected by this tax trap.”

Before we look at Laurin’s findings and potential fixes, let’s take a look at the different types of tax rates.

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Tips for Working in QuickBooks Online Bank Feed: Managing Bank Rules

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In this four-part series, I’m reviewing some of my favorite tips for working with bank and credit card feeds in QuickBooks® Online. This article is part two in the series. If you missed part one, find it 
here.

After connecting your bank and credit card accounts, bank rules help you control, customize and automate how QuickBooks categorizes transactions if a match is not found. You’ll save time on data entry. Here are five tips for creating Bank Rules in QuickBooks Online. In future articles, I’ll share my advice for adding or matching transactions.

Tip #1: Explore Your Conditions

Establishing conditions that work best for your transactions can take some planning, but will pay off in the end. Think about how you’d like QuickBooks to automate transaction entry and create your rules to fit your goals.
When creating a rule, choose Money In or Money Out and applicable bank and credit card account(s).
You can choose to structure your rule around ANY or ALL conditions and utilize the Bank TextDescription and/or Amount. You can create a rule based on a single condition or combine up to 5 conditions in a single rule.

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Here are your income splitting options now that the private corporation avenue is dead

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On Mon. Jan. 1, the ability of small business owners to sprinkle income among family members was greatly curtailed. Draft legislation introduced last month proposes to extend the current “kiddie tax” anti-income sprinkling rules to a spouse or partner as well as to adult children who are not “actively engaged on a regular, continuous and substantial basis in the activities of the business.”
While there are some limited exceptions to the new rule (e.g. a spouse of a business owner over age 65 or related adults of non-professional corporations who meet certain share-ownership criteria), for the most part, income splitting via a private corporation is dead.
That being said, with top marginal tax rates for high-income earners over 50 per cent in more than half the provinces in 2018, there are still a bunch of perfectly legal income-splitting strategies you may want to consider for this tax year.

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