What You Can Do to Prepare for Promised 2016 Increase in Income Tax
The new federal Liberal government has announced its intention to increase personal income tax rates by 4% on income earned in excess of $200,000 starting in 2016. Assuming this rate increase will come into effect as of January 1, 2016 and the proposals regarding non-eligible dividends announced in the 2015 federal budget will apply, our top marginal rates in Ontario will be:
It may be a good idea to re-look at your owner-manager remuneration for 2015 and consider withdrawing funds in 2015, to pre-pay tax at a lower rate than 2016. In addition it may be worth considering delaying discretionary deductions (such as RRSP) where practical to 2016 or a subsequent year.
Tax Loss Selling
Selling investments with accrued capital losses before December 24, 2015 may mean that you can offset any capital gains realized in 2015 or carry the capital losses back to any of the 3 previous tax years where you realized capital gains and get a refund of taxes. If you plan to repurchase the security you sell at a loss, please beware of the “superficial loss” rules. You and anyone affiliated with you (spouse, corporations owned by you or your spouse, RRSP, etc.) cannot repurchase and still hold the security within 30 days before or after the sale date. The capital loss will be denied in this situation and added to the cost base of the security.
Donate Public Securities
To increase public donations to charities, the government allows you to donate a publically traded security to a Canadian charity with an accrued gain and not pay any Capital Gains Tax and also receive the full charitable donation tax receipt for the full fair market value at the time of the gift. This can be done personally as well as in your corporation. If it is donated through your corporation, the full “taxable” portion of the gain is still added to the capital dividend account. The last day to make a donation in 2015 is December 31st.
Tax Free Savings Accounts “TFSA”
The new federal Liberal government has announced that it will be decreasing the contribution limits to TFSA’s in the future – possibly as early as 2016. If you haven’t made your full $10,000 TFSA contribution for 2015 do it before the end of the year. The limit may be decreased back to $5,500 in 2016 and no one knows if they will grandfather the $10,000 contribution limit in 2015 or not.
Probate – New Estate Administration Tax
There are new estate administration tax rules at play in Ontario since January 1, 2015. The rate of tax still remains the same (.5% on the first $50,000 and 1.5% on everything above $50,000) but there are new administration rules (an actual tax return must be filed by the Estate Administrator within 90 days of receiving probate) and there are audit and enforcement rules in play now with stiff penalties for non-compliance. The Ontario government has up to 4 years to come back and reassess the Estate Administrator if they feel the values in the Estate Return were not accurate. Secondary wills were always a good idea but now they may protect your Estate Administrator so it is a good idea to re-visit your wills and estate planning.