Winter 2015

In this issue:
2016 Personal BC Tax Rates
Year-End Reminders

Fall is back-to-school for professional development. Don and Jacqueline took a tax update course from colleague Tom Devaney. Gary attended an NBCN Conference in Toronto. Hunter has successfully completed the Canadian Securities Course and the Conduct and Practices Handbook Course. Earlier in the year, Errin earned her Level l Certificate in Financial Planning from FPSC. Don delivered three courses to the accounting profession in October.

The back page shows what 2016 personal tax rates are scheduled to look like, given the recent change in our political landscape. There is one drop for middle incomes and one rise (federal) and one drop (provincial) for high incomes. Someone earning $205,000 in 2016 actually would net out with a lower tax bill of $1,603. Only incomes above $300,000 will start to pay a higher tax in 2016.

The 2016 pocket calendars are in stock. Drop by to pick one up or call if you would like one mailed to you.

We wish you a happy and restive Holiday Season.

AGEING ENTREPRENEURS

The Press frequently writes about the number of small businesses that will be turning over as the Boomer Generation’s entrepreneurs retire or pass away, some of whom may have structures involving OpCos, HoldCos and Family Trusts, and perhaps complex share structures involving “freezes” and redeemable preferred shares.

Their advisors must be mindful of this bigger picture, and not just focus on the current year’s tax strategy. After death, scenarios can exist where the surviving Family may experience double taxation on the entrepreneur’s wealth. Section 55 of the Tax Act can bring to bear here, and 2015 changes to that section may worsen the situation. The lesson is: annual tax planning needs to take a back seat to longer term Estate planning.

 

santaOur Christmas book suggestion this year is How We Got to Now, by Steven Johnson. Better still, BBC picked up his material and turned it into a six-part TV series, which you can catch on Netflix. The author hosts the series…brilliantly!

 

 

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In the Fall issue, we encouraged everyone to review their estate planning designated beneficiary and joint tenancy declarations with their financial institutions. In the month of September, Trivest reviewed every investment account for these declarations and flushed out 20-30 files that needed amendment or improvement.

In particular, you must be aware of a fine point for estate declarations for TFSAs. Our colleague Amin Mawani, Fellow of FPSCTM, brought this to national attention this year. For a surviving spouse, there is a difference between being named a “beneficiary” versus a “successor beneficiary”, and being the latter likely is better. See our website article Estate Planning for TFSAs.

Estate issues

Many changes kick in starting with 2016 in the area of trusts. Previously, donations that were designated in a will had to be claimed on the deceased’s return, in either the year of death or the year preceding. Now, such donations can be claimed in the testamentary trust itself, in either the year the donation is made or any prior year of the trust. This requires that a) the trust is designated as a “Graduated rate estate” (a new concept) and b) the donation(s) must be made within 36 months of the date of death.

Spousal trusts and joint partner trusts also will see changes in 2016. Upon death of the last surviving spouse, all of the income and all of the deemed capital gains at that date now will be attached to the deceased’s final return, not to the trust itself. If the couple had an entrepreneurial history, such that, for example, their assets include preferred shares, there is potential for double taxation. Existing tax planning steps that alleviate this won’t work starting in 2016, because this “loss carryback” strategy is only available to graduated rate estates. Therefore, careful, new tax planning may be required.

Businesses

Tax law now requires completion on the corporate tax return of a new Schedule 88 for corporations that earn income from their website. This applies when some form of commerce transacts directly or indirectly off the website, but does not include a website which only indirectly generates revenue because it merely provides information about the business.


 

Colleague and Globe columnist Harvey Schachter, recently wrote a brilliant piece on society’s declining ability to focus and concentrate. Yes…this is one of those rants about laying off social media, television media and any other media that has corralled our brain’s preference for the dopamine fix from infinite, short-burst bombardments of new information.

I recently taught an all-day course for accounting practitioners and we spent part of that time talking about the inability to find the time to execute good ideas. Life is much about the inner battle within ourselves. It is also about staring down the biased self-assessment of zero cognitive dissonance, meaning that we set our own standards of expectations of ourselves and then we self-assess our attainment of those goals.

Our day-to-day lives have many sacred cows. Harvey’s article challenges many of these – like television, social media, the Internet and tablet technology. Reverting to the “good ole days” of book reading can restore our concentration powers. Author Daniel Levitin’s book The Organized Mind provides wisdom and guidance.


 

Travel Insurance

Another snowbird season is upon us. Those spending their winters with our southern neighbours will face another season where the lower cost of living down there is exacerbated by the $1.30 InsuranceCanadian dollars needed to fund daily life. “I coulda, I shoulda, I woulda…”: Another lesson in life to look at the longer tail in periods when the Canadian dollar stands high-next time—buy some cheap USD and stash it away in a US denominated account. Even if that account pays zero interest, the next 30% exchange return will reward you one day.

Snowbirds will face another cost hike with their travel insurance. The insurance carriers have to make payout claims with those same expensive US dollars. As a result, premiums have been increased….by more than 20%. For long stay trips, this can be very expensive! Time for some more folk wisdom.

If you ever have bought disability insurance in your life, you recall that it, too, can be very expensive. But, a very cost effective trick was to opt for an “elimination period“, eg 30, 60 or 90 days. This meant that if you had a short disability (less than the elimination period) you effectively self-insure and let the insurance carrier off the hook. What you were buying was risk insurance for longer disability terms. The reward for some short self-insuring is a significant drop in the premium! And so it is with travel insurance, except the self-insuring isn’t a period of time, but a sum of money…like the deductible on your comprehensive car insurance. These travel deductibles can range from a low of $250 to $10,000 or even $100,000! The greater the deductible, the lower the premium. So you need to find your own sweet spot in that trade-off, bearing in mind your own health risk assessment. The travel insurance carriers haven’t promoted this in the past, but the higher premiums this year are costing them business. Remember: choosing a deductible is a way better choice than going south this winter with no coverage, and better still than staying home.

US Tax Exposure

As the snowbirds head south, remember your exposure to “day counts” down there. See our previous article in our website Library

As a rule of thumb, the weighted average in this calculation works out to catching someone who spends approx 120 days in the US in each of the three years. If you are caught by this rolling UncleSamcalculation but fall shy of the regular sojourner count of 183 days in the current year, you should file on a timely basis the form 8840 to assert a closer connection to Canada.

Current US Tax Filers

The trend to escape US filing obligations by way of renouncing American citizenship is rising: 3,415 did so in 2014.

Canadians who retain their American citizenship must be mindful that future tax implications may await them downstream. For instance, as Canadians we take comfort, and for granted, that the value of our house appreciation is free of tax. For US purposes, the first $250,000 USD (or $500,000 for a couple) may be exempt, but tax can accrue above that. In today’s exchange world, that gain will be increased by the currency gain! Lastly, as Canada does not tax that house gain, any tax paid to the US will not receive foreign tax credit relief in Canada.



YEAR-END REMINDERS

  • Make your last personal tax instalment by December 15thFinger
  • Complete your donation plans by December 31st, and consider contributing in-kind, for a greater tax break
  • Make sure your RRIF withdrawal requirements have been met by December 31st
  • Review whether to take advantage of the one-time repayment of some of your 2015 RRIF withdrawal: the deadline is February 29, 2016
  • If you turned 71 this year, you are obliged to convert your RRSP to a RRIF by Dec 31st
  • Business owners should consider making use of the tax-free gift laws for staff Xmas bonuses (see details on our website)
  • Contemplate the wisdom of triggering taxable amounts, eg by RRSP deregistrations
  • Trigger the full $2,000 of tax-preferred pension income by December 31st if you haven’t already
  • Keep your transit pass receipts for the whole family, and buy monthly passes
  • Beat the February rush and make your 2015 RRSP contribution now
  • Get the jump on your 2016 TFSA contribution in early January, but wait for the Liberals new position on this
  • Review your unrealized capital gains/losses strategy
  • If you are an entrepreneur, review your payroll remittance balance for the year to be sure it is adequate when the 2015 T4 filing is prepared in February
  • As the New Year rolls around, you might want to think about whether you wish to defer your property taxes for 2016. If you are making monthly instalments, you may wish to stop them if you plan to defer. The interest rates are 1% for seniors and 3% for parents
  • Make your 2015 RESP contribution, and make your 2015 withdrawal for kids in school this semester

 

 

 

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