Tax Planning Solutions
The true art of tax planning involves a deep understanding of both the income tax act and the client`s situation to craft a complete set of solutions that minimize, defer and avoid income tax payable. The Canada Revenue Agency (CRA) allows us to reduce our taxes payable as much as legally possible. Our Tax Specialist Team at A.T. Financial has some of finest Canadian and global tax advisers.
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Tax Planning for HealthCare Professionals
Healthcare professionals who earn in excess of $75,000 per year and have a Professional Corporation receive numerous tax saving advantages, namely:
- Deferring (and saving) tax on retained income
- Up to $500K in "active business income" each year eligible for 16.5% tax rate (Ontario)
- Excess only 32% in 2009, and down to 25% in mid-2013
- Significant tax savings when considering the highest personal rate still 46.4% (Ontario)
- On $500K in excess income, tax deferral is about $150K/yr! (over 20 years, this amounts to over $3million!)
For more tax planning and other advice for HealthCare Professionals,
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The essence of INCOME SPLITTING involves the legal shifting of taxable income among family members-income from the higher tax-payer to the lower rate payer-such as a spouse or children and thus reducing the overall tax a family pays.
A number of different techniques can be used to accomplish this objective; some simplistic in nature and others more sophisticated. The bottom line, though, is that ALL families consider deploying at least some income splitting strategy.
Some highly-effective income splitting strategies include:
- Spousal RRSPs
- Capital Gains Transfer & Capital Loss Transfer
- Second Generation Income to children
- Gifts to Children and Grandchildren
- Pension Splitting (CPP, OAS, GIS)
- Family Small Business
- Family Members Salary
- Estate Freeze
- Prescribed Family Loan
- Informal Trust
- Family Trust & Inter-vivos Trust
If you or your spouse is a sole proprietor or partner in a business you can pay a portion of your profits out in a salary to a family member and then deduct the salary against your business income. The salary must be reasonable for services that were rendered. This strategy is particularly useful if the family member earned no income, since no personal tax is payable on the first $8,700 of personal income, hence your business will get a deduction and the family member will pay no tax.
Crystallization: Asset Freezing (Transferring assets at fair
In some cases it may be beneficial to transfer assets to a lower-income family member if the asset is expected to earn income or grow in value in the future, since that future income or growth will be taxed at a lower rate. Types of assets could include: stocks, bonds, part ownership of a company, dividend-earning assets and real assets (i.e., Long-term assets that help earn income).
Small Business Corporations: Transfers or Loans
Canadian controlled private corporation (CCPC) or a Small Business Corporation (SBC) with all or substantially all (generally 90 per cent or more) of its assets being used in an active business carried on primarily in Canada: transfers or loans to an SBC will not give rise to attribution back to you even where your spouse or minor children may be shareholders directly or indirectly in the SBC. These companies may be exempt from attribution rules. Therefore, transfers to such entities allow income splitting and may also qualify for the $750,000 capital gains exemption.
Tax Shelters
A tax shelter investment is an investment that is protected from taxation or has preferential tax treatment. In order to seriously consider such an investment, you should be in the top marginal rate. These types of investments tend to be highly risky (in some cases, the government has provided preferential tax treatment for these investments to encourage investors to consider the investments; without these incentives, some of these investments tend to be too risky to induce people to invest in these areas).
Some of the most common tax-sheltered investments include:
- Whole and Universal Life Insurance (low-risk option)
- Mining Exploration, Oil and Gas Ventures
- Farming
- Canadian Films and Video Production
- Labour Sponsored Venture Capital Corporations (LSVCCs)
- Limited Partnerships
When a donation is made, you do not receive a tax deduction but instead you receive a tax credit. This reduces your tax bill. For the first $200 donated, you can claim a tax credit of 16% and for the amount of the donation that is over $200 you receive a tax credit of 29%.
Deductible Fees for Investment
Certain types of fees and charges that are paid by you when investing are fully tax deductible. Some of the more common include:
- safety deposit box charges
- bank charges
- fees for direct advice (specific to a particular investment)
- fees for administration and/or management of securities
Note: Fees commissions paid on the purchase or sale of investments are NOT tax deductible. Instead, commissions increase your adjusted cost base on the purchase of an investment, and will reduce your capital gain (or increase your loss) on the sale of an investment.
If private health insurance premiums are paid by your employer, then it is not a taxable benefit to you. Therefore, it is beneficial for the employer to be the sole contributor since the employer receives a deduction and the employee pays no tax.)
Dividend Income
Dividends are distributions of profits from a corporation to the owners (shareholders). A dividend can be from a preferred share or a common share-and usually is paid to you in the form of shares or in cash. Since Canadian corporations usually pay tax on profits before they are then distributed to shareholders as dividends, dividends from a Canadian corporation receive a more favourable tax treatment (the dividend tax credit) than interest income in your hands personally.
