From the Editor: The Yin and Yang of Being Canadian

Q1 | March 2018

Laptop, notebook, Tablet and coffee on work desk

Topic: Tax Planning

Dianne C. White CPA, CA, CFP, TEP

March 21, 2018

Image used with permission: iStock/PRImageFactory


Print & Share

Print

From the Editor: The Yin and Yang of Being Canadian

Q1 | March 2018

Canada was a medal-winning machine at the Pyeongchang Olympics with an overall third place finish and a record setting 29 medals. As one of the sports writers who covered the games for the Globe and Mail wrote ”the rest of the world started to notice that Canada was no longer the kind of milquetoast pipsqueak who is off-limits to criticism.” (1) And there was plenty of that (think the women’s curling team), as well as some ugliness at the end with a Canadian athlete arrested for allegedly stealing a vehicle.

Turning to the economy – where once Canada was an attractive tax regime for business investment, it now appears that the winds of change are upon us. The 2018 federal budget was released at the end of February and was alarmingly light in substance given the economic challenges Canada faces. In particular, Canada’s long-standing corporate tax advantage over the U.S. is gone given the recent business tax reform south of the border. In addition, the U.S. personal tax system is more favourable for skilled workers when compared to Canada’s high personal income tax rates. This, and other challenges like the NAFTA renegotiations, means we no longer have the same competitiveness when it comes to business investment. It was a disappointment to many that these issues were not addressed in the budget. In addition, there was no clear plan established to return to a balanced budget. In fact, since being elected, this government has increased program spending by an incredible 20.1% from 2014-2015 to 2017-2018. This represents an annualized growth rate of 6.3% which has dwarfed the 3.3% growth in revenue! (2) Planned future spending announced in the budget will make deficit matters worse by increasing program spending 23% over the next five years.

To say there was a silver lining in the budget would be an overstatement, but there was a sigh of relief when the pending tax proposals around the taxation of passive investments inside a Canadian Controlled Private Corporation (“CCPC”) were essentially scrapped, including any grandfathering treatment of existing passive investments. Instead, the government introduced two new measures that will come into force in 2019. The first restricts access to the small business deduction (that allows active business income to be taxed at the lowest business rate) for those that have passive income (portfolio income) inside their corporation exceeding $50,000. The proposal reduces the amount of business income eligible for the small business tax rate by $5 for every $1 of passive investment income above the $50,000 threshold, such that the small business deduction is reduced to $0 when passive investment income reaches $150,000.

Guidance was provided for computing what is included in the $50,000 of passive investment income. It will be defined as “adjusted aggregate investment income” and there will be amounts to add and subtract in the calculation. Most notably, it will include realized capital gains from portfolio investments, but not gains that come from the sale of property from an active business.

The second measure refines how corporate and personal tax integration works with regard to dividends paid out of a corporation to a shareholder and amends the existing refundable tax regime. This measure is quite technical. Suffice it to say that the government is trying to ensure that the deferral between personal income tax rates and the CCPC small business tax rate is minimized. There will be more to come over the months ahead that will detail how changes to the refundable tax regime will affect planning for those with professional corporations and holding companies.

In this issue of Nexus Notes we introduce you to the Nexus adds Depth to the Investment Team Roster, discuss the recent market volatility in the context of history and revisit our Leaving a Legacy series on estate planning.

(1) “How did the Canadian Olympians become the new Ugly Americans?”, Cathal Kelly, The Globe & Mail, February 25, 2018.

(2) “Balanced Budget Still within Trudeau’s Reach” Charles Lamman and Hugh MacIntyre, the Globe & Mail, February 23, 2018.

More Like This...

See another CRM2 blog post that may be of interest to you.

No posts found.

More Like This...

See another Foundations & Endowments blog post that may be of interest to you.

That Giving Feeling

Topic:
Foundations & Endowments, Tax Planning
Excerpt:
Summer is now a distant memory. In fact, a radio announcer declared only 77 days until Christmas. Ugh. It is usually in the last quarter of the year

More Like This...

See another Human Interest blog post that may be of interest to you.

COVID: An Uneven – and Unequal – Recovery

Topic:
Human Interest
Excerpt:
Canadians have had enough of the lockdown. Here we are 18 months after you first heard of the then mysterious Wuhan flu. Today, but for any curve ball

More Like This...

See another Inside Nexus blog post that may be of interest to you.

Nexus: Behind the Scenes

Topic:
Inside Nexus
Excerpt:
Over the years, readers of the Nexus blog have been treated to various posts from my colleagues. On the other hand, much like my role at Nexus, I have

More Like This...

See another Investments blog post that may be of interest to you.

The Burden of Experience in a Modern World

Topic:
Investments
Excerpt:
Those of us who started in the industry decades ago have witnessed enormous change. When I finished university in 1982, Japan was the world’s

More Like This...

See another Pearls of Wisdom blog post that may be of interest to you.

“Work, Work, Work, Work, Work, Work”

Topic:
Pearls of Wisdom
Excerpt:
This has been a busy year. I’ve had lots happening on the home front (a wedding!) and lots going on at the office (too long to list!) Managing work

More Like This...

See another Tax Planning blog post that may be of interest to you.

The Great Transition – A Tax Efficient Withdrawal Strategy

Topic:
Tax Planning
Excerpt:
The change from “saver” to “spender” is what I call the great retirement transition. Figuring out how to draw on your retirement savings to meet your

More Like This...

See another Wealth Planning blog post that may be of interest to you.

Living to 100… Is 100 the New 80?

Topic:
Wealth Planning
Excerpt:
It’s a common saying that there are two certainties in life, death and taxes. While we have a pretty good idea when we get taxed, which feels like all

On a Side Note…

See another CRM2 Nexus Notes Quarterly article that may be of interest to you.

No posts found.

On a Side Note…

See another Foundations & Endowments Nexus Notes Quarterly article that may be of interest to you.

No posts found.

On a Side Note…

See another Human Interest Nexus Notes Quarterly article that may be of interest to you.

Worth 1,000 Words

Topic:
Human Interest
Excerpt:
A little humour makes the world a better place.

On a Side Note…

See another Inside Nexus Nexus Notes Quarterly article that may be of interest to you.

From The Editor: Summer Vacation

Topic:
Inside Nexus
Excerpt:
Summertime and vacations go hand in hand. The season is linked with feelings of relaxation and recreation. As kids, we saw the arrival of summer as

On a Side Note…

See another Investments Nexus Notes Quarterly article that may be of interest to you.

Nexus and the ESG Integration Approach

Topic:
Investments
Excerpt:
At Nexus, we think Environmental, Social and Corporate Governance (ESG) considerations are a helpful input to our investment decision-making process.

On a Side Note…

See another Pearls of Wisdom Nexus Notes Quarterly article that may be of interest to you.

A Table for None, Please; Working From Home on the Rise

Topic:
Pearls of Wisdom
Excerpt:
Reading is one of the principal occupations in our profession. As we digest a wide range of material, interesting ideas and surprising facts – some

On a Side Note…

See another Tax Planning Nexus Notes Quarterly article that may be of interest to you.

The Great Transition – A Tax Efficient Withdrawal Strategy

Topic:
Tax Planning
Excerpt:
The change from “saver” to “spender” is what I call the great retirement transition. Figuring out how to draw on your retirement savings to meet your

On a Side Note…

See another Wealth Planning Nexus Notes Quarterly article that may be of interest to you.

Living to 100… Is 100 the New 80?

Topic:
Wealth Planning
Excerpt:
It’s a common saying that there are two certainties in life, death and taxes. While we have a pretty good idea when we get taxed, which feels like all