Tax Planning

This page contains the posts that I have written about tax basics and tax planning.

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    Income Splitting

    Tax On Split Income (TOSI) Tax Rules For Corporations

    family business income splitting

    In 2018, the Minister of Fairness spanked CCPCs for income sprinkling.

    There are still times where CCPC owners may still be able to us dividends to income-split with family members.

    There are complicated rules. Get the bottom line.

    Plan Your Income Sprinkler

    income sprinkling

    Spreading out income between family members can drastically reduce your tax bill and mean more money for your family.

    There are short-term, intermediate-term, and long-term approaches to doing this. Even after the recent attack on income-splitting.

    You May Want To Be Sleeping With Your Billing Agent

    hiring spouse

    Hiring a family member and paying them a fair wage is a great way to income split.

    Not only do you decrease money going to the tax collector. You play less to outside agents. No one will care whether you get the maximum billable amounts more than you and your spouse.

    How To Squish The Tax-Person Using Your Home To Income Split

    smith maneuver

    Using home equity to invest is leveraged investing. You use a mortgage or HELOC (debt) to invest and make money.

    That has potential risks and benefits. Done properly, you could use the debt to not only invest but also to reduce taxes. That can help shift the risk-benefit equation.

    How We Income-Split Using Home Equity For Leveraged Investing

    smith maneuver

    One way to income-split is to help the lower-income spouse build a personal after-tax investment account. It can spin off passive income attributed and taxed to them.

    Setting it up properly is critical.

    That usually requires excess cash. In this post, I share how we used our home equity to invest and income split.

    Spousal RRSPs For Income Splitting: From Diapers To Diapers

    spousal rrsp parental leave

    Learn how a spousal RRSP works. More than just tax-deferral.

    A spousal RRSP can also reduce tax, if you have a lower-income spouse.

    Avoid getting caught in the attribution rules and other hazards.

    Learn different ways a spousal RRSP could be used for income splitting at different life stages. From parental leaves to pension-splitting.

    Play The Banker With A Spousal Loan

    income splitting

    If a high-income professional has excess after-tax money, then they may want to play banker to their spouse to income split.

    A spousal loan can help the low-income spouse grow a passive income stream. However, it must be set up properly to avoid the attribution rules. Learn how.

    A Spousal Loan From A High-Income Employee

    high income employee

    Meet the Jones’. A high-income professor and low-income writer.

    How can a spousal loan help them towards their dreams of early retirement and adventure? How is that impacted as the CRA prescribed interest rate rises?

    A Spousal Loan From An Incorporated High-Income Professional.

    spousal loan

    An incorporated professional may need to take money from their corporation if they want to make a spousal loan.

    How does that impact the efficacy of this income-splitting strategy?

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    CCPC or Professional Corporation Taxation

    How Money You Earn Flows Through Your Corporation & Into Your Pocket

    professional corporation account

    Cashflow is like a river that flows from your earnings, through taxation, and into your pocket to spend.

    A Canadian Controlled Private Corporation (CCPC) or Professional Corporation is like a dam that can regulate that flow. Smoother flow means less money lost to taxes.

    Investment Taxation In A Corporation

    corporation investing

    If you have retained earnings in your corporation, you can invest them to grow. That is the tax deferral advantage of a corporation.

    How well that works depends on the type of investment income it produces and how well you flow money out of your corporation.

    Learn about how corporate investment taxation works to keep the tax skeeters out of your corporate reservoir.

    What Counts As Passive Income For Corporations: Devils In The Details

    Too much passive income in a CCPC can increase its tax rate.

    Learn about what counts and what doesn’t.

    Make sure that you are using all of the deductions available to you.

    Will The Active-Passive Tax Rules Destroy the CCPC Enterprise?

    These tax changes are meant to further discourage incorporated professionals and other high-income professionals from using a CCPC as a tax-deferral vehicle.

    What impact will that have on the tax-deferral power of private corporations?

    Impact of the Passive Income Tax Rules For Corporations As A Retirement Vehicle

    The active-passive tax increase on Canadian small businesses has a variable impact.

    It depends on your income, savings rate, and spending.

    Check out the effects on three different model high-income households.

    With The Passive Income Corporate Tax Changes: Is It Bad To Be Good?

    Corporation Tax Savings
    Modified from Grease, 1978, RSO Records.

    The tax changes were aimed to target high-income professionals.

    Could a moderate-income professional get caught in them too, if they are good. They work hard, live within their means, and save for the future.

    Will Dr. Sandra D. be punished for their savings rate?

    Limbo With The New Active-Passive Income Rules For Corporations

    A combination of too much active and too much passive income in a corporation could result in a bump in corporate tax rate.

    A high level approach is a basic dance to lower corporate active and passive income to limbo under the threshold.

    Financial Tools & Strategies For Incorporated Professionals To Repel Tax Pirates

    Canada tax increase

    An overview of eight different strategies we can use if we find our corporate ship drifting into tax-pirate infested waters.

    Learn the basics of how they work.

    Don’t just trade some tax savings for increased fees and complexity.

    Explaining The Refundable Dividend Tax On Hand (RDTOH)

    There are a number of tax rules to discourage using corporations for generating passive investment income. One of those is the RDTOH.

    There were more changes in 2019 to make it even more awkward and complicated.

    Like a Klingon mating ritual.

    Corporation GRIP As A Tax Slashing Weapon

    CCPC GRIP account

    If you receive eligible dividend income from investing in Canadian equities, it generates GRIP in your corporation.

    That can be used to give tax-favoured eligible dividends.

    This has the potential for very tax-efficient money flow through a corporation. Or you could cut yourself.

    Can You Benefit From The Loosened GRIP On Corp Passive Income Tax

    Warning: Devilishly Advanced Content.

    Implementation of the active-passive income tax was meant to penalize those with high corporate incomes.

    They broke tax integration in Ontario & New Brunswick that could translate to a 2% to 6.66% net tax savings for a small group of big earners/investors/spenders.

    Investing Using A Corporation vs RRSP vs TFSA Simulator

    incorporation retirement investing

    Some advise to only pay dividends from a corporation and keep all investments in the corp.

    Others advise to pay salary and use an RRSP plus the corp. Some even suggest a combination to use a corp, RRSP, and TFSA.

    There are a number of variables that lead to this advice and they change as our corporation grows. This simulator compares these different strategies over time.

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    Investment Taxation

    Investment Income & Taxation: Intelligent Design or Jurassic Park?

    investment tax planning

    In order to tax plan for your investments, you must understand how they are taxed.

    You should also know why they are taxed that way. The stronger the rational, the more resilient those tax rules should be to political diddling. Are you tax planning based on solid assumptions of how investment income is taxed?

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    Capital Gains Harvesting

    Capital Gains Harvesting From A Personal Taxable Account

    Unrealized capital gains are a form of tax deferral. So, it is generally recommended to avoid realizing them before you must.

    However, whether tax-deferral means more after-tax money in your hands depends on your current and future tax rate.

    If the capital gains tax rises or your personal tax rate in the future is set to rise, then harvesting gains at a lower tax rate makes sense. How likely are your tax rates to rise?

    Time For Capital Gains Harvesting From Your Corporation?

    capital gains harvest

    Generally, it is a good idea to defer realizing capital gains because that defers taxes. However, in a corporation, if you are sitting on large capital gains, it can sometimes makes sense to harvest them.

    A capital gains harvest could be a tax efficient way to move money out of your corporation to fund a personal expense, top up your TFSA or RRSP, or invest via a personal account.