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

2018 Federal Budget Tax Commentary

The 2018 Federal Budget was released on February 27, 2018.  The main highlight of the budget for small businesses wast the revised “Passive income” proposals.  There is still a negative impact on small business but the rules are simpler than the original proposals.

Why did the government just introduce these rules in the first place? The government would have saved the small business community a lot of time and energy if this was the original proposal.

Please see attached my analysis presented to members of the OnePlan Business Centre in Burlington, Ontario.

My response to the July 18, 2017 Tax Proposals

In my 2017 Budget analysis, I dismissed a comment made by the government as it was so vague. “To help ensure everyone pays their fair share of tax, the Government will identify and close tax loopholes and tax planning schemes that disproportionately favour the wealthy—including tax planning strategies that involve private corporations.”

Now we know what the Department of Finance was talking about.

Please read my submission to the Department of Finance.

Submission to Dept of Finance

Federal Budget 2017 Analysis: No big surprises

On March 22, 2017, Finance Minister Bill Morneau delivered his second budget.  Below are the key items that will impact you and your small business.

It should be noted that CRA is getting another $520 million to their budget. I would expect more CRA inquires and audits, especially if you are a small business owner.

Personal Tax Items

The big surprise is that there are no real significant changes to personal taxation given all the speculation leading up to the budget. For example, no change to tax rates, income splitting, to the principal residence exemption, the capital gains inclusion rate or taxability on employer provided health plans.

Nurses can now certify individuals for the disability tax credit.

Nurses are added to list of medical professionals that can certify an individual’s disability for the credit. Any help in getting qualified individuals the credit is always welcome.

Expansion of eligible medical credits for families trying to conceive a child

Use of reproductive technologies, even if not medically indicated because of a medical infertility condition will be allowed for 2017 and subsequent years and the ability to go back for the 10 preceding years at your choice. Going back 10 years is unusual, but claiming this credit could generate some significant tax savings.

Consolidation of Caregiver Credits

There are currently three types of caregiver credits: infirm dependent credit, caregiver credit, and the family caregiver credit. These will be consolidated into the new Canada Caregiver Credit for 2017 and later years. The big change to this credit is that parents who live with their children who are not infirm will no longer qualify for the consolidated credit.

You can receive your T4 by email

Before certain requirements had to be met before your employer could email your T4 slip. The requirements have been relaxed but you can demand to get a paper copy from your employer.

More institutions qualify for the tuition tax credit

Given Ontario’s lead in eliminating all post-secondary tax credits and last year’s elimination of the education and textbook amount by the federal government, I thought that this credit would be eliminated. Keeping this credit does show some commitment in education.

Elimination of Public Transit Tax Credit

Elimination of this credit is surprising given how much the country needs transit infrastructure. The elimination of this credit takes effect July 1, 2017. While, I won’t miss looking at Presto travel logs to figure out the correct amount of the credit, it is unfortunate for the credit to disappear because this credit could deliver some real tax savings, unlike many of the other former and existing tax credits.

Watch for mutual fund corporations to disappear

The government has made it easier for mutual fund corporations to change to mutual fund trusts.

Business Tax Items

The good news here is that there no major tax changes. After the last two budgets, this is very good news indeed!

Factual Control of a corporation

The government is making it easier for them to assert that you have control over someone else’s corporation even with no documentation. This is relevant for the small business tax rate.

Taxation of derivatives

The government is allowing an election to mark all derivatives owned to market if they choose. Once you elect in, you cannot elect out with the government’s approval. As well, straddle transactions are being curtailed. Losses on the “losing legs” cannot be recognized until the “winning leg” is recognized for tax purposes.

Billing for Professionals

Professionals must value their work-in-process at the end of the year and include that amount in income. To help facilitate the change for those taxpayers who currently exclude their work-in-progress, there is a one year transition period. This changes takes effect for the first taxation year after today.

HST Items

  • Uber and other similar ride sharing apps must charge HST.
  • Naloxone is not subject to HST

Other Items

  • Alcohol and tobacco taxes are increasing


This analysis is intended as a brief overview and does not include all 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 business. 


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


Dealing with CRA in Oakville as a Small Business Owner

If you are a small business owner, then you worry about running your business successfully. You need to keep your customers and suppliers happy, meet payroll and work to expand. The last thing you need to worry about is being responsible for someone else’s tax debt. Unfortunately, the Income Tax Act and the Excise Tax Act can make your business responsible for paying your employees and your supplier’s tax debt. If you don’t comply, you will be dealing with CRA in Oakville collecting from you.

Obviously, the simple answer for dealing with CRA in Oakville is to comply with the order. If it is your employee that owes the money, you can deduct a percentage from their after-tax pay and remit directly to CRA. With a supplier, you send your payment to them directly to CRA instead of to the supplier, or the amount that they owe CRA – which ever payment amount is lower. Out of courtesy to your supplier or employee, you will want to explain to the employee or supplier what you are doing.

I’m discussing this rule because a client of mine recently faced this issue when dealing with CRA in Oakville. What made my client’s situation interesting was that we received a “Second Notice” without getting a “First Notice”. When I called the CRA collection agent, the agent informed me that she sent the First Notice to the taxpayer and not my client. Not exactly an effective method of collecting payment! The troubling aspect of it is that I may have to spend time to fix this error. Problems could arise if CRA sends the “Final Notice” to the taxpayer, rather than my client, and then begin to enforce a judgement against my client.

As I mentioned in a previous blog, always open your mail from the CRA! Dealing with CRA in Oakville doesn’t have to be difficult. If you don’t understand the CRA letter, please do not hesitate to contact me.

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.

Federal Budget 2016 Analysis

On March 22, 2016, Finance Minister Bill Morneau delivered his first budget.  Below are the key items that will impact your Toronto personal taxes and your small business.

Items Regarding Toronto Personal Taxes

New Canada Child Benefit

Starting July 2016, the Current Canada Child Tax Benefit and Universal Child Care Benefit is being replaced with a new Canada Child Benefit (CCB).  The CCB is non-taxable and the amount received will depend on the number of children you have and your family income. Families will receive $6,400 per child under age of 6 and $5,400 per child aged 6 to 17. An additional amount of $2,730 per child will be available if your child is eligible for the disability tax credit. However, these amounts will be phased out for family incomes over $30,000. 

Phase-Out Rate (%)

Number of children

$30,000 – $65,000

Over $65,000










4 or more



Elimination of Income Splitting Credit

Previously, a maximum $2,000 non-refundable tax credit was available that allowed one spouse to notionally transfer up to $50,000 of taxable income to the other spouse. This credit is eliminated in 2016 and future years.

Teacher and Early Childhood Educator School Supply Tax Credit

If you are a teacher that pays for supplies in the course of your job, a $150 tax credit ($1,000 of supplies x 15% tax rate) will be available for supplies bought on January 1, 2016 or later. Your employer will have to certify this credit.

Elimination of Education and Textbook Tax Credits

The federal government will eliminate the current credits of $70 per month for full-time students ($465 per month x 15%). Unlike the Ontario budget, federal tuition credits for actual tuition paid will remain intact.

Elimination of Children’s Fitness and Arts Tax Credits

These $150 and $75 credits ($1,000 and $500 respectively) will be cut in half in 2016 and then eliminated in 2017. This elimination mirrors the recent Ontario elimination of their equivalent that was dependent on this amount.

Use of Mutual Fund Corporations to defer sales for Toronto personal taxes eliminated

Mutual funds are either setup as corporations or setup as trusts. Currently, if you exchange one mutual fund trust for another mutual fund trust, this exchange is taxable. While if you exchanged one class of a mutual fund corporation for another class in the same corporation, it was not a sale for tax purposes. The budget proposes that if you do an exchange after September 2016, the exchange will be taxable. For more information about mutual fund investing, please see my previous article about mutual funds that can be accessed here.

Sales of Linked Notes

Financial institutions sell debt products that are linked to the performance of an asset, typically a stock market index. Currently, the sale of these products before maturity would be treated as a capital gain which is taxed lower than interest income. The budget proposes to tax any gains on the sale of these products after September 2016 as interest income.

Business Tax Items

The good news here is that most of the feared changes implied in Mr. Trudeau’s comments in previous election were not implemented. This consisted of making the small business deduction harder to claim for business owners, similar to what the Quebec government has done. Fortunately, the government has only targeted amendments for structures designed to get multiple small business deductions. As well, structures used to split income with family members were also spared in this budget.

Small Business Tax Rate Reductions Cancelled

The small business tax rate will remain at 10.5% instead of going down to 9% by 2019, combined with the Ontario government keeping its rate constant. The current Ontario small business tax rate will be at 15% for the foreseeable future.

New Eligible Capital Property Regime

Currently, 75% of the cost of eligible capital property (goodwill on buying a business, incorporation costs, other unlimited life assets) are deprecated for tax purposes at a rate of 7% per year on a declining balance basis. Also, 75% of any sales of this type of property (a) reduce the cost to zero, (b) “recapture” any previous deductions and then the difference is considered to be business income that is included as income at a rate of 50% similar to capital gains.

This budget proposes to eliminate this system and have a new CCA class where 100% of the amount is deductible and depreciated at 5% on a declining balance basis. There will be transition rules to this new system and special rules for goodwill. To help the majority of taxpayers who have small balances, the greater of $500 and the amount otherwise allowed will be able to be claimed for expenses incurred before 2017. As well, up to $3,000 of incorporation costs can be written off immediately rather than enter this new regime.

Life Insurance Planning Curtailed

The government has closed two “loopholes” using this type of planning. First, if a person transfers a policy to their corporation, the person would only pay tax on the cash surrender value over their cost base but could get the fair value of the policy out tax-free. The government has now said that all transfers will be done at fair value for sales done after today.

The other type of planning being curtailed is to prevent “abuses” undertaken with split dollar policies. Life insurance proceeds are tax-free when received by individuals. When received in a corporation, the use of the “capital dividend account” ensures that life insurance remains tax-free. However, the tax-free amount has to be reduced by the tax cost of the policy. Since the cost of the policy in a split dollar situation is with another entity, the reduction to the capital dividend account would not occur. This budget proposes to eliminate such plans.

HST Items

Medical Devices

Insulin pens and insulin pen needles, are now zero-rated for HST purposes, in other words, businesses that supply them can claim HST refunds but customers do not have to pay HST, similar to food.

Follow-up from 2015 Budget

The government is going to implement the following items:

  • Rules converting tax-free intercorporate dividends into capital gains
  • Repeated failure to report income penalty
  • Relief of HST for feminine hygiene products

The government will not be implementing:

  • Any changes for businesses who run campgrounds or self-storage units
  • Changes to provide relief from capital gains for individuals who donated the cash from the sale of their business or real estate to a charity within 30 days of sale

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 your Toronto personal taxes and your 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.

Are you selling your company’s shares to claim the capital gain exemption? Don’t forget to save money for taxes

You have worked hard to build a successful Toronto small business and you have found a buyer who is willing to buy the shares of your company.

You have the cheque in your hand and you are deciding what you should do next.   Before you start spending your hard-earned money, you better save some money to pay off your tax bill that’s due next April.

Now you may be thinking: “Wait, what tax bill?!?  I thought selling my company was supposed to be tax free.  That’s what I keep hearing on TV.”

While the first $813, 600* of selling your Toronto small business shares are tax free, you will be subject to the Alternative Minimum Tax.

You may be asking: “What is this Alternative Minimum Tax? And why have I never heard of it before?”

The Alternative Minimum Tax is basically the government’s way of ensuring Canadians pay tax even though many can take advantage of various tax deductions and credits.  Many Toronto small business owners have never heard of it before because it only applies in relatively rare and unique circumstances.  Below I will offer an example of a case in which the Alternative Minimum Tax may apply.

In order to estimate your potential tax bill, do the following:

1. Take your gain (up to $813,600) x 30%

2. Take the result from 1 and subtract $40,000.

3. Take the result from 2 and multiply by 15%

4. Take the result from 3 and multiply by 1.35 (to add provincial taxes)

As example, say you have an $800,000 gain on the sale of your company shares.  Your conservative tax estimated bill would be calculated as follows:

($800,000 X 30% – 40,000) x 15% x 1.35 = $40,500

Therefore, you will need to have to keep this cash available to pay off CRA on April 30th, the year after you sell your business.

If you have continued income over the next 7 years, the $40,500 will be used as a reduction for future tax bills. However, you can only claim the reduction if your regular tax bill is in excess of your AMT bill each year.  To demonstrate this, I will continue from the example given above. Say you got a consulting contract from the purchaser of your business for $200,000 for 2016, which generates a $60,000 tax bill.  You would only owe $19,500 in 2016 as the $40,500 is used as a “credit” against the $60,000 worth of tax that you owe in 2016.  In other words, under the “regular” tax system you would have paid $0 in 2015 and $60,000 in year 2 for total taxes of $60,000.   Under the AMT system, you paid $40,500 in 2015 and $19,500 in 2016 for total taxes of $60,000.  While this example oversimplifies what can be an extremely complex process, it illustrates that the AMT is generally a prepayment of tax.

If you have no income over the 7 years following the sale of shares, the $40,500 becomes your tax bill on the sale of your company and will not be credited to you.

Therefore, it is very important to factor in this tax bill when selling your Toronto small business.  Please contact me to discuss options on how to manage this tax cost. 

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.

* Yes, the $813,600 is an odd number.  Here is how it arises: The 2014 Budget raised the capital gain exemption for Toronto small business shares from $750,000 to $800,000 and the $800,000 is now indexed for inflation.  The 2015 figure is $813,600 ($800,000 x 1.7% inflation factor prescribed by tax law).




Ontario’s Retirement Pension Plan: Job-killing Tax or Opportunity?

On August 11, 2015, the Ontario government released more details regarding the Ontario Retirement Pension Plan (“ORPP”). As it is my job as an Oakville Chartered Professional Accountant to understand the ways that the ORPP and other government initiatives can affect my clients, I have been asked to clarify the consequences and details of the ORPP. Some of the details that were released to the public include:

  • Self-employed individuals will not be covered under the ORPP; the government looking for options to allow self-employed individuals to participate
  • For businesses to be exempt from the ORPP they will either need to:
    • Provide a Defined Benefit (DB) plan with a minimum benefit accrual rate of 0.5% (for instance, OMERS’ rate is 1.85%)
    • Provide a Defined Contribution (DC) plan with minimum contribution of 8% with at least 4% coming from employers
    • Provide a pension plan that meets the ORPP’s comparable threshold tests
  • Companies with 50-499 employees that currently do not have a plan and who are not exempt will start making contributions on January 1, 2018:
    • 1.6% (50% from employer, 50% from employee) in 2018
    • 3.2%(50% from employer, 50% from employee) in 2019
    • 3.8%(50% from employer, 50% from employee) in 2020
  • Companies with 50 or fewer employees that currently do not have a plan and who are not exempt will start making contributions on January 1, 2019:
    • 1.6% (50% from employer, 50% from employee) in 2019
    • 3.2%(50% from employer, 50% from employee) in 2020
    • 3.8%(50% from employer, 50% from employee) in 2021

Some have viewed this as a “job-killing” tax, similar to the Canada Pension Plan (CPP) and Employment Insurance (EI). Like the CPP and EI, the cost increases as the number of employees increase (discouraging new hires) and as salaries increase (discouraging raises). There is also time and/or monetary costs in dealing with the administrative burden of the ORPP or the equivalent setup by the company. 

However, as an Oakville Chartered Professional Accountant, I can help you find the benefits of the ORPP for your company. Companies can use the introduction of the ORPP to:

  • Introduce/amend pension plans to attract/retain employees to remain with their organization
  • For companies with multiple owners, allow owners to have their own pension plan as part of their overall savings strategy

Given these new requirements, it is important you think of your pension strategy in the coming months in order to be ready for when the changes take effect in either 2018 or 2019.  Please contact me to discuss your situation with an Oakville Chartered Professional Accountant. 

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

Don’t spend your UCCB: You’re going to need it

On July 20, 2015, every Canadian with children will receive $60 a month per child, or have their benefit increased to $160 a month per child as a result of changes to the Universal Child Care Benefit program. Depending on whether or not you signed up for direct deposit with your Oakville personal taxes, you’ll receive a cheque in the mail or a deposit into your bank account. This refund covers January 2015 to July 2015.

You may be thinking:  This is great! Extra money in my pocket! However, there are a few things you’ll want to remember:

a) The UCCB refunds are taxable as ordinary income for dual parents. For single parents, the refunds reduce the “Amount for eligible dependent” credit. In Ontario, these payments are taxed at a rate between 20.05% to 49.53% depending on your income level.

b) As part of the increased UCCB, the”Child Tax Credit” has been eliminated. This credit elimination will increase your Oakville personal taxes by $338.25 per child per year.

For an average working dual parent family, the impact will be as follows per child as follows in Ontario:

a) Increase to UCCB:                                 $720.00  –  $60.00 per month for 12 months

b) Taxes on UCCB:                                     ($216.00) – Assume 30% tax rate

c)Loss of Child Tax Credit:                       ($338.25) – per year

Net impact per child each year:      $165.25 

In this example, you would benefit an extra $300.00 if you benefit from the $1,000 increase to the child care expense limit.

This example illustrates that Canadians will not fully benefit from the increased UCCB and will need to ensure they can cover the changes in their Oakville personal taxes as laid out above.   Please contact me to determine the impact on your family and how I can assist you to ensure you do not receive a larger than expected tax bill for 2015. 

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.

Gain Tax Deferrals with an Active Income Model

Generally speaking as a Toronto business advisor, incorporating your business offers numerous advantages. Most importantly you will be able to defer income from personal taxation. For example, in Ontario you can defer 34% in taxes if you are in the top Ontario income tax bracket by earning income through a corporation you own. Of course, the CRA is not always fond of this loophole, but the Canadian government wants small businesses to expand successfully. To this end, tax law is quite generous in which corporations are offered this 34% deferral. As I outline below, it is fairly easy to qualify.

There are a few qualifications:

(a) The corporation must not be a public company that is owned > 50% by Canadians


(b) The corporation cannot be an “incorporated employee,” i.e. a person who provides services to their employer via a corporation rather than directly (more about that in a future blog) or a corporation that derives more than 50% of their income from “passive” income dividends, such as rent, unless the corporation has more than 5 full time employees through the year

Of course, many people are not aware of the second requirement but, as a Toronto business advisor, I can assure you that CRA is. In the past few months, I have seen at least 4 form letters from CRA that, in more complex terms, state, “We think your corporation looks like a passive income corporation and we will tax your corporation at the highest tax rate possible unless you prove otherwise.  You have 30 days to provide us with your proof.”

Given the relative simplicity of the law, if your corporation earns the majority of its income from rent or passive sources and the corporation does not have more than 5 full-time employees (they must be on the payroll), the company will have to pay the higher rate of tax. While a significant portion of this tax is refundable, your 34% deferral becomes about a 3% deferral.

If you are in this situation, please contact me to discuss how, as a Toronto business advisor, I can help you navigate the tax laws 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.





Mutual Fund Corporations: A less taxing investment?

In one of my previous posts, I discuss how mutual fund corporations are becoming more popular because they offer tax-deferred investing. I explain how calculating the ACB of these investments can be challenging. As a Toronto chartered professional accountant, I’m often asked how mutual fund corporations can offer investors the ability to switch funds on a tax-deferred basis but mutual fund trusts cannot?

The answer is that corporations are allowed to do tax-free transactions with their shareholders that mutual fund trust holders cannot do with their unitholders.  In particular, if you hold shares in a mutual fund corporation, you can move between the various classes of the corporation on a tax-deferred basis. Tax law does not recognize the trade of shares between classes of a single mutual fund corporation as a “sale” of the shares. Therefore, these trades are non-taxable.

The one advantage that mutual fund trusts have over mutual fund corporations is that trusts can allocate all of their income to investors, while mutual fund corporations can allocate only Canadian dividends and capital gains. For that reason, mutual fund corporations generally have equity investments. However, sellers of these investment products have come up with exotic variations of mutual fund corporations to attract investors, including classes to allow for investing in money market funds and offer so-called tax efficient classes (“T class”) by returning capital to investors.

Another consideration is cost. Typically, the mutual fund corporation will cost more in management fees than the equivalent mutual fund trust investment because the cost of the corporate structure is higher. However, this cost may be worth if if you want to switch to another fund on a tax-deferred basis.

Taxes are an important part in making any investment decision as after-tax return is what counts. This is where a Toronto chartered professional accountant becomes useful. Please contact me if you would like me to review your investment portfolio or any possible investment from a tax perspective. 

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