William Khalilieh, CPA, CA
Providing Accounting and Tax Solutions to Small Businesses in the GTA

2015 ON Budget Summary & Analysis

The Ontario government delivered the 2015 Budget today. Here are the highlights that will have an impact on you and your Oakville small business:

Personal Tax Changes

No changes were announced to personal tax rates. However, with the change to the federal dividend tax credit (see my 2015 Federal Budget Summary and Analysis here), the top marginal tax rate on non-eligible dividends (basically dividends from companies that get the Oakville small business deduction or have investment income) will increase as follows:

  • 2015: 40.1%
  • 2016: 40.4%
  • 2017: 41.0%
  • 2018: 41.2%
  • 2019: 41.4%

If you have income from one of these types of corporations, especially from those that generate investment income, you may want to think about taking dividends out sooner rather than later.

Ontario is also moving to parallel the federal rules when it comes to trusts and estates that were announced in the 2014 Federal budget. The most significant change is that estates have 3 years during which it can benefit from marginal tax rates. Afterwords, estates are taxed at the highest tax rates. Those with a person with a disability as a beneficiary are exempt from this change.

While technically not a tax increase, be aware of increases in user fees, such as those for drivers and vehicles, hazardous waste, and family courts.

Of course, I can’t forget the beer tax. It was announced last week that the cost of a 24-case will increase by 25 cents per year until 2018.

Business Tax Changes

No changes were announced to corporate tax rates.

Other issues of note:

  • Ontario continues to develop its version of the CPP, known as the Ontario Retirement Pension Plan
  • Ontario is restricting or eliminating some of their specialized tax credits, including two of the more mainstream credits: The Apprenticeship training tax credit and the Ontario interactive digital media tax credit
  • Ontario continues to combat the underground economy with a focus on residential roofers this year and auto-body repair shops next year
  • Introducing laws to make “zappers” illegal
  • Ontario wants to enter into information sharing agreements, including with municipalities

This analysis is intended as a brief overview and does not include all of the details to help you take advantage of these rules as applicable. Please contact me to see how these changes can impact you and your Oakville small business. 

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

2015 Federal Budget Summary & Analysis

Today the federal government released the 2015 budget to the public. Here are the highlights that will have an impact on you, your business, and your Toronto corporate taxes.

Personal tax changes

Lower minimum required withdrawals from Registered Income Funds (RIFs)

Easily the biggest change for personal taxes, this amendment lowers the minimum required withdrawal from your RIF if you are between 71 and 94. The amendment allows the minimum withdrawal to be approximately $17,885, and also  may allow seniors to keep or get the Guaranteed Income Supplement and/or Old Age Security.

Increase to the Tax-Free Savings Account Limit

The limit has been increased to $10,000. The limit will not increase any further. This is another beneficial change for seniors as well as those who have the funds to invest.

Home Accessibility Tax Credit

At the end of the year, this credit will allow people 65 or older and individuals who otherwise get the disability tax credit to claim expenses (up to $10,000) as a non-refundable tax credit (i.e. the credit can only reduce your tax bill to zero and not generate a refund) to help these individuals to continue to live in their home. Examples of expenses that qualify include wheelchair ramps, walk-in bathtubs, wheel-in showers and grab bars. While I am not a fan of these boutique tax credits, this credit is easy to support. Other “minor” changes:

  • Simplified reporting of foreign assets if your foreign asset is between $100,000 and $250,000.
  • Sales of qualified farming and fishing property are now valid for a $1,000,000 capital gain exemption rather than $800,000 (indexed to inflation) for small business corporations.
  • Registered Disability Savings Plans (RDSP) can still be opened by relatives of individuals who cannot enter into a contract – extended to 2018 from 2015.
  • Repeated Failure to Report Income Penalty is reduced for individuals who unintentionally failed to report income. This change benefits lower income earns who didn’t report income from CPP or something similar in cases where the tax was small compared to the income.
  • Procedural changes that make it easier for CRA to advance theories in tax litigation.
  • CRA agents can now share information between “tax” and “non-tax” departments.   For example, CRA will now be able to use income tax returns to determine an individual’s student loan repayments.
  • Changes to the Family Tax Cut that allow tuition credits to be used to help split income.

Changes to Toronto corporate taxes

Reduction in the tax rate to corporations that get the small business deduction (“SBD”)

Currently, corporations that qualify for the SBD pay 11% tax to the federal government. The tax rate will be reduced by .5% per year for the next four years to take it to 9% starting in 2016. This change is a bit of a surprise as it was not mentioned in any political commentary.

As a result of these changes, dividends received from these corporations will have a higher effective tax rate due to a lower  “dividend tax credit” resulting from lower Toronto corporate taxes being paid. However, a side effect of this change is that if your corporation earns rent and other passive income you may be better off taking some dividends out now to save tax overall.

New small businesses can remit their payroll quarterly

Currently, all new small businesses must remit payroll taxes monthly before qualifying to go quarterly. This change allows all small business to go immediately remit quarterly starting in 2016 assuming all of the qualifications are met.

Employment Insurance Premium Rate reduction

The rate will be reduced to $1.49 per $100 of earnings in 2017 from $1.88 per $100 of earnings in 2016. However, if Ontario goes ahead with its Ontario Pension Plan in 2017, you may not see this reduction.

Other changes that will impact your small business

  • The government is inviting comments on whether changes should be implemented in regards to the types of income that qualify for the small business deduction.  Businesses like campgrounds, hotels, and self-storage units that do not employ more than 5 full time employees are affected by these laws.  Any relief to these types of businesses would be welcome.
  • The government may release draft legislation regarding the conversion of the “eligible capital property” system into the regular capital cost allowance system sometime this year.

This analysis is intended as a brief overview and does not include all of the details to ensure you can take advantage of these rules as applicable.   Please contact me to see how these changes can impact you and your Toronto corporate taxes. 

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

Calculating ACB: Not as Easy as ABC

Mutual funds investments are popular with Canadians as they offer the opportunity to access professional money managers without a significant upfront investment. Yet, unlike buying stocks, tracking your tax cost (Adjusted Cost Base or “ACB”) takes a lot of work and many people simply don’t bother.  Even though the CRA does have a guide to assist you in this task (RC4169 Tax Treatment of Mutual Funds of Individuals)  and they have made the guide as simple as possible sometimes it’s just easier to talk to an Oakville tax advisor.

The most significant challenge is having the patience and the time to review your old investment statements and tax slips to calculate the tax cost correctly. Perhaps your mutual fund company has done this work for you as part of the information it provides to you during tax season. However, it may not be correct. Possible reasons include incorrectly programmed computer systems or the superficial loss rules may have applied to prior sales and you may have the same investment at a different institution. Note that fund companies will have a disclaimer that information may not be accurate and direct you to an Oakville tax advisor to review the calculations.

I have also noticed that mutual fund corporations are getting more popular with Canadians as they offer tax-efficient and tax-deferred investing. Tracking the ACB for these investments is even harder because, unlike a mutual fund trust that uses a T3 slip to report distributions, mutual fund corporations issue distributions on a T5 (like interest from banks). Mutual fund corporations, like trusts, can pay you a distribution that is considered a “return of capital”. The return of capital is a non-taxable distribution that lowers your ACB and creates a capital gain in the future. However, there is no space on the T5 to indicate a return of capital. As an Oakville tax advisor, I have seen some mutual fund companies put this amount into an empty space on the T5. If the return of capital is not put onto the T5, you would have to look at your investment statements and perhaps even talk to the fund company to ensure you calculate your cost correctly.

Getting the ACB right is important so that you pay the proper amount of tax. You want to avoid overpaying your taxes and giving the government a gift / interest-free loan or underpaying only to risk the CRA charging you large amounts of interest. Bringing in an Oakville tax advisor is the safest way to calculate ACB. Please contact me and I will be happy to review your ACB calculation or do it for you. 

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

Earn Money Paying Taxes! (For a limited time)

I came across an online article in the Toronto Star where they were featuring this company, Plastiq Inc., that allows you to pay your taxes and other utilities with your credit card.

The catch? (Of course, there’s a catch.)

The company normally adds a surcharge of 2.5% of the amount owing as the government always needs to get paid and Plastiq needs to make money. As a Toronto accountant, the surcharge would usually discourage me from using such a service. However, Plastiq has a limited time offer that got my attention.

From now until May 31st, Plastiq is only charging 1% on paying your tax bill on Mastercard (Visa and Amex are not part of this promotion). If you have happen to have a cash back or similar travel card that gives you 1% or more of your purchases as a reward, then you can come out ahead.

For example, if you pay $1,000 to CRA via Plastiq and your Mastercard will be charged $1,010. However, your rewards card would give you $20.20 back. Net amount out of your pocket – $989.80. You would save $10.20 by using Plastiq. Not a bad deal for something that you have to pay anyway.

I only recommend this strategy if you pay off your credit card in full each month, otherwise the interest cost will negate any savings. A better route to go would be to put your payment on your credit card first and then pay your taxes with Plastiq. It’s a win-win situation.

What is really good about this promotion is CRA is allowing personal taxes, corporate taxes, payroll, and HST to be paid in this manner. So this promotion can help you and your business.

Paying taxes is never fun but at least for a limited time, it is slightly less painful.

If you have any questions, it’s best to talk to a Toronto accountant directly. Please contact me so I can help you navigate this promotion effectively.

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area. so I can help you navigate this promotion effectively.

Reduce Taxes After Loved Ones Pass

Dealing with the passing of a loved one is tough enough but taking care of the financial responsibilities makes the grieving process even more difficult. Often, those closest to the one who passed are responsible for dealing with the deceased’s assets. What are the tax implications of selling the assets? I can help you find Oakville practical solutions in this difficult time.

For the most part if the deceased has a spouse, the assets would be left to him or her. This transfer is normally done on a tax-free basis. If this is not the case, then all of the assets are deemed to be disposed at fair market value upon passing, resulting in a tax bill. However, this “deemed disposition” now establishes the cost of the asset, for tax purposes, to the estate at that same fair market value.

For example, if you owned 100 shares of ABC Inc. and you purchased it for $10,000 and its fair market value on the day you died was $50,000, then there would be a capital gain of $40,000 and your estate has “purchased” it for $50,000. In the process of selling the shares to give cash to the beneficiaries, your estate would likely have a gain or a loss. If there is a gain, the estate will pay the tax at graduated rates like an individual does. But what happens if there is a loss?

In theory, the loss could be used against future capital gains. But the estate will likely be wound-up as quickly as possible (especially with the changes in the 2014 Federal Budget) and are likely not to have a capital gain in the future to use it against. Fortunately, tax law allows for the capital loss to be used against the capital gain that was triggered on death instead of remaining in the estate. The executor will have to apply for it and file some paperwork with CRA. CRA will (eventually) reduce the tax bill that was assessed on death. However, the executor must do this within one year of the person passing away or the executor will have to make a request from CRA to apply this rule.

This works for most other types of capital assets, including the deceased’s main residence, as long a family member does not live in the house while it is being sold. If a family member does live in the house after passing then there is no loss created because the loss is classified as a “personal use property” loss which is zero under tax law.

If you have any questions about how you can find Oakville practical solutions, please do not hesitate to contact me.

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides Oakville practical solutions for taxes and accounting to individuals and their businesses in the Greater Toronto Area.