Much of our political landscape in Canada recently has been focused on Mr Morneau. As a G7 member, our country has been blessed for several decades with very competent Finance Ministers; however, the last few years have been quite the opposite. The personal indiscretion re French chateaus and the political lack of wisdom has had the whole country paying attention. What is unfortunate is the lack of reasoned intellectual arguments around the issues. The “inconvenient” parts are ignored or not understood. The assault on, apparently, 3% of wealthy entrepreneurs ignores many issues. First, from 2002–2013, the top personal tax bracket held firm at 43.7%. From 2014-2018, it has risen to 49.8%, from roughly $200,000 of taxable income, a number that the “wealthy” far exceed. For instance, a $1M earner will pay approx. $50,000 more in 2018 than 2013. Second, the “bad guy” is 2% of entrepreneurs who earn 80% of corporate passive income and are making “more than $250,000 per year”. Third, the other “bad guy” identified by Press Release includes an entrepreneur earning $300,000 and spreading that income across the family. The very same Release touting the drop in corporate tax rates for small business cites a hypothetical poster-child “good guy” couple whose business has earned $150,000 AFTER taking (undisclosed) salaries to themselves, which could hypothetically and easily mean the business was earning at least, say, $300,000. Fourth, the touted drop in small business tax rate is nice but overall not that applicable. The vast majority of small business people have bought themselves a job which has a side benefit of independence. In fact, with this frequently comes an “entrepreneurial discount”, meaning they make less, work harder and have more worries than paid employees. Most of them withdraw for their life costs whatever the company makes, leaving behind little or none for this low corporate rate.
Fifth, the unexpected major changes to CPP will raise CPP premiums, potentially quite substantially, for small business. Sixth, the universal CPP system historically is intended to replace 25% of working income during retirement, based on a salary limit of circa $55,000. The universal RRSP system is intended to replace 18% of working income, based on a salary limit of circa $145,000. The citizen who manages to earn more than these amounts through luck/hard work/advanced education/ risk-taking has no means to save enough through recognized programs to replace their working incomes in retirement. Corporate saving is the only quid pro quo.
Seventh, the Finance Minister ought to be spending less time on these issues and more time hanging out with his colleague, the Minister of National Revenue, the one who collects the taxes that Finance concocts. The efficiency of CRA has hit a low in our 38 years in practice…we are told that the most totally routine action by them will take 60 days!
Our Christmas book suggestion this year is The Art of Risk: the New Science of Courage, Caution and Chance, by Kayt Sukel. She studies the neuroscience of decision-making and risk-taking. Staying on the theme of the brain… her follow-on book, This is Your Brain on Sex, is an interesting study on the neuroscience of love.
- Make your last personal tax instalment by December 15th
- 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
- If you turned 71 this year, you are obliged to convert your RRSP to a RRIF by Dec 31st
- If you are doing so, consider the wisdom of a final RRSP contribution before conversion
- 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, if your income is low
- Trigger the full $2,000 of tax-preferred pension income by December 31st if you haven’t already
- Beat the February rush and make your 2017 RRSP contribution now
- Get the jump on your 2018 TFSA $5,500 contribution in early January
- Review your unrealized capital gains/losses strategy by mid-December
- If you are an entrepreneur, review your payroll remittance balance for the year to be sure it is adequate when the 2017 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 2018. If you are making monthly instalments, you may wish to stop them if you plan to defer. The interest rates remain at .7 of 1% for seniors and 2.7% for parents
- Make your 2017 RESP contribution and make your 2017 withdrawal for kids in school this Winter semester before year-end…and make an early 2018 contribution in January
- Did you conduct your Will check up this year?