A 93% tax rate? Private corporation tax could make it possible
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Small business owners across the land are still reeling from last month’s announcement by Finance Minister Bill Morneau targeting private corporations and fundamentally changing the way businesses and incorporated professionals are taxed. The tax strategies being challenged can be categorized into three main areas: income sprinkling, earning passive investment income in a corporation, and converting a corporation’s ordinary income into tax-preferred capital gains.
In a previous column, I’ve discussed the proposed income sprinkling rules that would effectively eliminate opportunities for business owners to sprinkle dividends and capital gains among adult relatives, unless they contribute “reasonable” labour or capital to the business.
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The dos and don'ts of tax-free gifts in Canada
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If you’ve ever considered making a significant financial gift to your children, you’re not alone. A recent CIBC poll of 3,021 randomly selected Canadian adults found that the majority (76 per cent) of Canadian parents with a child 18 years or older would give their kids a financial boost to help them move out, get married, or move in with a partner.
Once you decide to give, however, the next question is how much should you give, what form should your gift take and what are the tax, and in some cases, family law considerations and opportunities associated with making a gift.
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How Ottawa’s crackdown on tax loopholes for the wealthy might affect you
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The federal government announced a proposal Tuesday that would crack down on the practice of wealthy individuals spreading their income among family members to create major tax savings.
Ottawa is taking aim at three major loopholes, affecting as many as 50,000 families, including what is called “income sprinkling” using private corporations to shift income from an individual facing a higher personal income tax rate to a family member who is subject to lower personal tax rates or who may not be taxable at all.
“Many of the richest Canadians are unfairly exploiting the tax rules designed to help businesses thrive. We know that businesses, including small businesses, help grow the Canadian economy. These tax advantages are in place to help these businesses reinvest and grow, find new customers, buy new equipment and hire more people. We want to make sure those rules are used to do just that, and not to give unfair tax advantages to certain – often high-income – individuals,” said Bill Morneau, the federal finance minister, in a statement.
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What the new ‘income sprinkling’ rules mean for tax planning
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Small business owners, including incorporated professionals such as doctors, lawyers, accountants and others, will likely face a higher tax bill in the years ahead as a result of Finance Minister Bill Morneau’s announcement this week targeting several common, and until now, perfectly legal, tax strategies used in conjunction with private corporations.
The strategies under attack can be categorized into three main areas: income sprinkling, earning passive investment income in a corporation and converting a corporation’s ordinary income into tax-preferred capital gains.
Among these changes, it’s the first one — income sprinkling — which is perhaps deemed the most offensive of the three and the one that will likely have the broadest financial impact on small business owners and incorporated professionals.
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The Bruins couldn't beat the Sens, but here's how they scored on the IRS
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While the Boston Bruins may not have won a Stanley Cup since 2011 when they defeated the Vancouver Canucks in Game 7, they achieved an off-ice victory last month when they faced off against the Internal Revenue Service in U.S. Tax Court.
The issue in the case was the deductibility of 100 per cent of the cost of player and staff meals when the Bruins played their away games in city arenas throughout the U.S.
and Canada. The Bruins stayed at hotels when visiting away cities and contracted with the hotels to provide the pregame meals to players and team staff. The Bruins’ owners deducted 100 per cent of the cost of the pregame meals at away games, totaling US$256,000 in 2009 and US$284,000 in 2010.
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