British Columbia’s 2024 Budget Highlights

On February 22, 2024, the B.C. Minister of Finance announced the province’s 2024 budget. This article highlights the most important things you need to know about this budget, broken into 3 sections:

  • Real Estate

  • Personal Tax Changes

  • Business Tax Changes

Real Estate

Home Flipping Tax Introduced

Effective January 1, 2025, the home flipping tax applies to properties sold within a short holding period of 365 days. Sellers who dispose of residential properties within this timeframe will incur a 20% tax on the income generated from the sale. The tax rate gradually decreases to 0% for properties held between 366 and 730 days. It’s important to note that this tax applies globally, affecting both British Columbia residents and non-residents selling properties within the province. 

The tax encompasses various types of residential properties, including those with housing units and properties zoned for residential use. Additionally, income generated from contract assignments is also subject to this tax. However, the tax does not apply to land or portions of land used for non-residential purposes.

Property Transfer Tax Exemption Thresholds Increased:

Effective April 1, 2024, first-time home buyers can benefit from an increased threshold of $835,000, with properties valued under $500,000 being fully exempt from the tax. Furthermore, purchasers of qualifying newly built homes see an increase in the exemption threshold to $1.1 million for principal residences. This measure aims to alleviate the financial burden on first-time buyers and encourage investment in new housing developments.

Speculation and Vacancy Tax – Registered Occupier:

Starting January 1, 2024, individuals holding residential properties under a registered lease will be considered the registered occupiers of these properties for taxation purposes. This means that leaseholders will be required to declare the use of the property annually, with declarations for activities occurring in 2024 commencing in 2025. This measure aims to ensure that registered leaseholders accurately report their property usage.

Personal tax changes

There are no changes to the province’s personal tax rates in Budget 2024. 

As a result, the B.C.’s personal income tax rate remains as follows: 

BC Family Benefit Bonus:

Effective July 1, 2024, the annual benefit amounts and income thresholds used to determine eligibility for the B.C. Family Benefit are increased by 25%. However, these adjustments are temporary and will revert to previous levels at the end of the 12-month benefit period. This enhancement aims to provide additional financial assistance to families facing economic challenges during the specified period.

Provincial Sales Tax Changes:

Several amendments to the Provincial Sales Tax (PST) rules are introduced to streamline tax administration and ensure fairness in taxation:

  • Reduction in PST refunds for goods intended for export but resold within British Columbia aims to prevent abuse of export-related tax benefits.

  • Broadening of the “software” definition for PST purposes, retroactive to April 1, 2013, addresses ambiguities and aligns with the evolving landscape of digital products and services.

  • Clarification on PST refunds for self-assessed goods returned to non-PST collecting sellers aims to simplify tax refund processes and reduce administrative burdens.

  • Inclusion of clean energy production machinery in PST exemptions aims to incentivize investment in renewable energy infrastructure and support climate action initiatives.

  • Clarification on taxable services provided with leased goods ensures consistency and clarity in tax treatment, reducing potential disputes and improving compliance.

  • Expansion of administrative penalties’ application aims to deter non-compliance and ensure adherence to tax laws, thereby safeguarding revenue integrity.

Climate Action Tax Credit Payment Increase: 

Effective July 1, 2024, adult recipients will see an increase to $504, spouses or common-law partners to $252, and children to $126. Furthermore, income thresholds for credit phase-outs are adjusted upwards, allowing more individuals and families to benefit from the tax credit. These adjustments aim to alleviate financial burdens associated with climate action initiatives and promote environmental sustainability

2024 Financial Calendar

2024 Financial Calendar

Welcome to our 2024 financial calendar! This calendar is designed to help you keep track of important financial dates and deadlines, such as tax filing and government benefit distribution. You can bookmark this page for easy reference or add these dates to your personal calendar to ensure you don’t miss any important financial obligations.

If you need help with your taxes, tax packages will be available starting February 2024. Don’t wait until the last minute to get started on your tax return – make an appointment with your accountant to ensure you’re ready to go when tax season arrives.

Important 2024 Dates to Know

On January 1, 2024 the contribution room for your Tax Free Savings Account opens again. The maximum contribution for 2024 is $7,000.

If you qualify, on January 1, 2024 the contribution room for your First Home Savings Account opens. The maximum contribution for 2024 is $8,000. 

For your Registered Retirement Savings Plan contributions to be eligible for the 2023 tax year, you must make them by February 29, 2024.

GST/HST credit payments will be issued on:  

  • January 5

  • April 5

  • July 5

  • October 4

Canada Child Benefit payments will be issued on the following dates: 

  • January 19

  • February 20

  • March 20

  • April 19

  • May 17

  • June 20

  • July 19

  • August 20

  • September 20

  • October 18

  • November 20

  • December 13

The government will issue Canada Pension Plan and Old Age Security payments on the following dates: 

  • January 29

  • February 27

  • March 26

  • April 26

  • May 29

  • June 26

  • July 29

  • August 28

  • September 25

  • October 29

  • November 27

  • December 20

The Bank of Canada will make interest rate announcements on:

  • January 24

  • March 6

  • April 10

  • June 5

  • July 24

  • September 4

  • October 23

  • December 11

April 30, 2024 is the last day to file your personal income taxes, and tax payments are due by this date. This is also the filing deadline for final returns if death occurred between January 1 and October 31, 2023.

May 1 to June 30, 2024 would be the filing deadline for final tax returns if death occurred between November 1 and December 31, 2023. The due date for the final return is six months after the date of death.

The tax deadline for all self-employment returns is June 17, 2024. Payments are due April 30, 2024. 

The final Tax-Free Savings Account, First Home Savings Account, Registered Education Savings Plan and Registered Disability Savings Plan contributions deadline is December 31.

December 31 is also the deadline for 2024 charitable contributions.

December 31 is also the deadline for individuals who turned 71 in 2024 to finish contributing to their RRSPs and convert them into RRIFs.

Please reach out if you have any questions. 

2023 Year-End Tax Tips and Strategies for Business Owners

2023 Year-End Tax Tips and Strategies for Business Owners

Now that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.

Salary/Dividend Mix

As a business owner, an essential part of tax planning is determining if you receive salary or dividends from the business.

When you’re paid a salary, the corporation can claim an income tax deduction, which reduces its taxable income. You include this pay in your personal taxable income. You’ll also create Registered Retirement Savings Plan (RRSP) contribution room.

As a general guideline, if you find yourself needing to take money out of your corporation, like for personal expenses, it’s a good idea to consider withdrawing a salary to create room for contributing to your Registered Retirement Savings Plan (RRSP). By receiving a salary of up to $175,333 in 2023, you can potentially generate RRSP contribution room for the following year, amounting to a maximum of $31,560 (the 2024 limit).

If you don’t have an immediate need to withdraw funds from your corporation, you might still want to take out enough money to maximize your contributions to RRSPs and Tax-Free Savings Accounts (TFSAs). These plans can offer an effective way to earn a return on your investments without incurring taxes.

Lastly, it’s worth considering the option of leaving any surplus funds in your corporation to take advantage of substantial tax deferral benefits. This strategy may potentially result in more substantial investment income over the long term compared to personal investing.

The alternative is the corporation can distribute a dividend to you. The corporation must pay tax on its corporate income and can’t claim the dividend distributed as a deduction. However, because of the dividend tax credit, the dividend typically pays a lower tax rate (than for salary) on eligible and non-eligible dividends.

In addition to paying yourself, you can consider paying family members. These are the main options you can consider when determining how to distribute money from your business:

  • Pay a salary to family members who work for your business and are in a lower tax bracket. This enables them to declare an income so that they can contribute to the CPP and an RRSP. You must be able to prove the family members have provided services in line with the amount of compensation you give them.

  • Pay dividends to family members who are shareholders in your company. The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.

  • Distribute money from your business via income sprinkling, which is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to tax on split income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.

  • Keep money in the corporation if neither you nor your family members need cash. Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your tax rate.

No matter what strategy you take to distribute money from your business, keep in mind the following:

  • Your marginal tax rate as the owner-manager.

  • The corporation’s tax rate.

  • Health and payroll taxes

  • How much RRSP contribution room do you have?

  • What you’ll have to pay in CPP contributions.

  • Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).

Compensation

Another important part of year-end tax planning is determining appropriate ways to handle compensation. Compensation is financial benefits that go beyond a base salary.

These are the main things to consider when determining how you want to handle compensation:

  • Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose and offers deductible interest.

  • Do you need to repay a shareholder loan to avoid paying personal income tax on your borrowed amount?

  • Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying a bonus?

  • Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.

  • Consider setting up a retirement compensation arrangement (RCA) to help fund your or your employee’s retirement.

Passive Investments

One of the most common tax advantages available to Canadian-controlled private corporations (CCPC) is the first $500,000 of active business income in a CCPC qualifies for the small business deduction (SBD), which reduces the corporate tax rate by 12% to 21%, depending on the province or territory.

With the SBD, you can reduce your corporate tax rate, but remember that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.

The best way to avoid losing any SBD is to ensure that the passive investment income within your associated corporation group does not exceed $50,000.

These are some of the ways you can make sure you preserve your access to the SBD:

  1. Defer the sale of portfolio investments as necessary.

  2. Adjust your investment mix to be more tax efficient. For example, you could hold more equity investments than fixed-income investments. As a result, only 50% of the gains realized on shares sold is taxable, but investment income earned on bonds is fully taxable.

  3. Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total.

  4. Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.

Depreciable Assets

Consider speeding up the purchase of depreciable assets for year-end tax planning. A depreciable asset is a capital property on which you can claim Capital Cost Allowance (CCA).

Here’s how to make the most of tax planning with depreciable assets:

  • Make use of the Accelerated Investment Incentive. This incentive makes some depreciable assets eligible for an enhanced first-year allowance.

  • Consider postponing the sale of a depreciable asset if it will result in recaptured depreciation for your 2023 taxation year.

Qualified Small Business Corporation (QSBC) Share Status

Ensure your corporate shares are eligible to get you the $971,190 (for 2023) lifetime capital gains exemption (LCGE). The LCGE is $1,000,0000 for dispositions of qualified farm or fishing property.

Suppose you sell QSBC shares scheduled to close in late December 2023 to January 2024. In that case, you may want to consider deferring the sale to access a higher LCGE for 2024 and therefore defer the tax payable on any gain arising from the sale.

Consider taking advantage of the LCGE and restructuring your business to multiply access to the exemption with other family members. But, again, you should discuss this with us, your accountant and legal counsel to see how this can benefit you.

Business Transition

When considering the transfer of your business, family farm, or fishing corporation to your children or grandchildren, it is advisable to engage in a discussion with your advisor. This conversation should encompass an examination of recent and upcoming proposed changes to the Income Tax Act. These changes include the introduction of additional requirements that must be fulfilled for transfers taking place after 2023. The purpose of this discussion is to assess how these amendments may affect the tax implications associated with the sale of your assets.

Donations

Another essential part of tax planning is to make all your donations before year-end. This applies to both charitable donations and political contributions.

For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:

  • Donate Securities

  • Give a direct cash gift to a registered charity

  • Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.

  • Set up a private foundation to solely represent your interests.

  • We can help walk you through the tax implications of these types of charitable donations.

  • Get year-end tax planning help from someone you can trust!

We’re here to help you with your year-end tax planning. So book a meeting with us today to learn how you can benefit from these tax tips and strategies.

2023 Personal Year-End Tax Tips

The end of 2023 is quickly approaching – which means it’s time to get your paperwork in order so you’re ready when it comes time to file your taxes!

In this article, we’ve covered five different major types of 2023 personal tax tips:

  • Investment Considerations

  • Individuals

  • Families

  • Retirees

  • Students

Investment Considerations

Tax-Free Savings Account (TFSA)-You can contribute up to a maximum of $6,500 for 2023. You can carry forward unused contribution room indefinitely. The maximum amount you’re allowed to make in TFSA contributions is $88,000 (including 2023) if you have been at least 18 years old and resident in Canada since 2009.

Registered Retirement Savings Plan (RRSP) – For the 2023 tax year, you have until February 29, 2024, to contribute to your Registered Retirement Savings Plan (RRSP) or a spousal RRSP. However, contributing earlier can benefit you more due to tax-deferred growth. Your deduction limit for 2023 is 18% of your 2022 income, up to $30,780, but this will reduce if you have pension adjustments. Don’t forget, any unused contribution room from previous years or pension adjustment reversals can increase your limit.

Also, you can deduct contributions on your 2023 income if they are made within the first 60 days of 2024. It’s possible to defer these deductions to a later year if that suits your financial strategy better. To optimize your RRSP, consider holding investments that have the potential for growth outside of your RRSP to take advantage of lower taxes on capital gains and dividends. Within your RRSP, keep investments that generate regular interest income. If you’re unsure about the best investment strategy for your RRSP, our team is ready to provide expert advice to help you maximize your retirement savings.

Do you expect to have any capital losses? If you have capital losses, sell securities with accrued losses before year end to offset capital gains realized in the current or previous three years. You must first deduct them against your capital gains in the current year. You can carry back any excess capital losses for up to three years or forward indefinitely. 

Interest Deductibility – If possible, repay the debt that has non-deductible interest before other debt (or debt that has interest qualifying for a non-refundable credit, i.e. interest on student loans). Borrow for investment or business purposes and use cash for personal purchases. You can still deduct interest on investment loans if you sell an investment at a loss and reinvest the proceeds from the sale in a new investment.

Tax Loss Selling- Tax-loss selling is when you sell investments that have lost value by the end of the year from accounts that are not tax-deferred. This helps to offset any profits you made from other investments. If your losses are greater than your profits, you can use these extra losses to reduce taxes on profits from the last three years or save them to lower taxes on future profits.

For your losses in 2023 (or the past three years) to count, you need to complete the sale by December 27, 2023. This is because it needs to be settled by the end of the year, and December 30th and 31st are on a weekend in 2023.

If you sell an investment at a loss and plan to buy it again soon, you should know about the “superficial loss” rule. This rule applies if you sell something for a loss and buy it back within 30 days before or after selling it. It also applies if someone close to you, like your spouse or partner, a company they or you control, or a trust where you or they are the main beneficiaries (like your RRSP or TFSA), buys it within 30 days and still has it after 30 days. If this happens, you can’t use that loss to reduce your taxes right away. Instead, the loss gets added to the cost of the investment you bought back. You’ll only get the tax benefit from this loss when you sell this investment later.

When it comes to transferring investments, you might think about moving one with a loss into your RRSP or TFSA to count the loss without really selling it. But the tax rules don’t allow this, and there are big penalties for swapping an investment from a regular account to a registered account like an RRSP or TFSA.

To avoid these issues, it’s better to sell the investment that’s lost value and, if you have room, put the money from the sale into your RRSP or TFSA. Then, if you want, your RRSP or TFSA can buy the investment again after waiting for 30 days since the initial sale. This way, you avoid the superficial loss rule.


Individuals

The following list may seem like a lot, but it’s unlikely every single tip will apply to you. It’s essential to make sure you aren’t paying taxes unnecessarily.

COVID-19 federal benefits – If you return any amounts you received from COVID-19 benefits before the year 2023, you have the option to deduct the amount you paid back from your income for the year when you originally received the benefit, rather than the year in which you repay it.

Income Timing – If your marginal personal tax rate is lower in 2024 than in 2023, defer the receipt of certain employment income; if your marginal personal tax rate is higher in 2024 than in 2023, accelerate.

Medical expenses – If you have eligible medical expenses that weren’t paid for by either a provincial or private plan, you can claim them on your tax return. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and their dependent children in a 12-month period, but it’s generally better for the spouse with the lower income to do so.

Charitable donations – Tax credits for donations are two-tiered, with a more considerable credit available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward donations for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.

Moving expenses – If you’ve moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.

Alternative Minimum Tax (AMT)- The AMT framework is a taxation system that sets a minimum amount of tax for individuals who utilize specific tax deductions, exemptions, or credits to substantially reduce their tax liabilities to exceedingly low levels. With AMT, there’s a parallel tax calculation that doesn’t allow as many deductions, exemptions, or credits as the regular way of calculating taxes. If the tax amount computed under the AMT system exceeds the tax liability determined under the regular tax system, the surplus amount becomes payable as AMT for the year.

Recent government proposals have outlined forthcoming adjustments to the AMT system, set to take effect in 2024. These proposed modifications encompass elevating the AMT tax rate, enhancing the AMT exemption threshold, and expanding the AMT tax base by constraining specific exemptions, deductions, and credits that serve to reduce overall tax obligations. 

For individuals whose taxable income surpasses approximately $173,000, and who derive income subject to lower tax rates than standard income, or those who benefit from deductions or credits that mitigate their tax liabilities (such as capital gains, stock options, Canadian dividends, unused non-capital losses from preceding years, or non-refundable tax credits like the donation tax credit), it is anticipated that their AMT liabilities in 2024 may exceed those incurred in 2023.

To navigate these impending changes effectively and make financial decisions, it is advisable for individuals to seek counsel from a tax professional. 


Families

Childcare Expenses – If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct those expenses. A variety of childcare options qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting. Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. In addition, some provinces offer additional childcare tax credits on top of the federal ones.

Caregiver – If you are a caregiver, claim the available federal and provincial/territorial tax credits.

Children’s fitness, arts and wellness tax credits – If your child is enrolled in an eligible fitness or arts program, you may claim a provincial or territorial tax credit for fitness and arts programs.

Estate planning arrangements

  • Periodic Review: It is imperative to conduct an annual review of your estate planning arrangements to verify that they are in alignment with your objectives and compliant with current tax regulations.

  • Probate Fee Mitigation: Deliberate strategies should be explored to minimize probate fees. 

  • Will Examination: Regularly reviewing your will is crucial to ensure it remains valid and aligns with your evolving life and estate planning requirements.

Registered Education Savings Plan (RESP) – can be a great way to save for a child’s future education. The Canadian Education Savings Grant (CESG) is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.) If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if a) at least $2,000 has already been contributed to the RESP and b) a minimum contribution of $100 was made to the RESP in any of the four previous years.

Registered Disability Savings Plan (RDSP) – If you have an RDSP open for yourself or an eligible family member, you may be able to get both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.

First Home Savings Account (FHSA) – If you are a Canadian resident, age 18 or older and planning to become first-time homebuyers. Starting from April 1, 2023, this account serves as a valuable tool for saving towards the purchase of a qualifying first home. 

The FHSA program comes with an annual contribution limit of $8,000, and a cumulative lifetime cap of $40,000, with the flexibility to carry forward up to $8,000 in unused contributions. Importantly, contributions made to the FHSA are tax-deductible, offering potential tax benefits. Additionally, the returns earned on your savings within this account are not subject to taxation, which can enhance the overall growth of your savings. Most notably, when you make qualifying withdrawals to buy your first home, these withdrawals are non-taxable.

Retirees

Registered Retirement Income Fund (RRIF) – Turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a registered retirement income fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices. 

Pension Income- Are you 65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits. Don’t currently have any pension income? You may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.

Canada Pension Plan (CPP) – If you’ve reached the age of 60, you may be considering applying for CPP. Keep in mind that if you do this, the monthly amount you’ll receive will be smaller. Also, you don’t have to have retired to be able to apply for CPP. Talk to us; we can help you figure out what makes the most sense.

Old Age Security – For individuals aged 65 or older, securing enrollment in Old Age Security (OAS) benefits is essential. It’s important to note that retroactive OAS payments are limited to a maximum of 11 months plus the month in which you apply for your OAS benefits. Moreover, if you encounter OAS clawback challenges due to exceeding income thresholds, there are strategic measures you can take including income splitting or reduction. 

If eligible, you can opt to defer the initiation of your OAS benefits for up to 60 months after turning 65. This choice results in a permanent increase of 0.6% in your monthly OAS payment for each month of deferral.

These financial strategies, when combined with timely enrollment in OAS benefits, can help you navigate OAS-related matters effectively, ensuring you receive the maximum benefits available to you while optimizing your retirement income.

Estate planning arrangements – Review your estate plan annually to ensure that it reflects the current tax rules. Consider strategies for minimizing probate fees. If you’re over 64 and living in a high probate province, consider setting up an inter vivos trust as part of your estate plan.


Students

Education, tuition, and textbook tax credits – If you’re attending post-secondary school, claim these credits where available.

Canada tuition credit – If you’re between 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 per year, $5,000 maximum lifetime tax credit. You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.

Need some additional guidance?

Reach out to us if you have any questions. We’re here to help.

Different types of life insurance explained

Different types of life insurance explained

You may already have or are interested in life insurance because it can provide significant financial protection for you and your family. To get the best coverage that suits your needs and lifestyle, it is essential to be familiar with the four most common types of life insurance available:

  1. Term life insurance
  2. Permanent life insurance
  3. Participating life insurance
  4. Universal life insurance

1) Term life insurance

Term life insurance provides coverage for a specific period, such as five, ten, or even fifteen or twenty years. Once that term is up, you can choose to renew your policy – but your premiums may go up.

If you die while your term life insurance policy is in effect, your beneficiaries will receive a tax-free death benefit equal to the amount of coverage you selected. Your beneficiaries can then use that benefit to pay for whatever they choose, such as debts, a mortgage, tuition, and everyday living expenses.

2) Permanent life insurance

With permanent life insurance, you will have coverage for your whole life. In addition, the cost of insurance can be structured so that the cost does not increase as you age, even if your health worsens. However, the level cost for life means that permanent life insurance may be more expensive than term insurance premiums in the early years but potentially less costly than term insurance premiums as you age.

As with term life insurance, your beneficiaries will be entitled to a tax-free death benefit after you die. Permanent life insurance also offers a cash value feature. You can use this cash value as collateral for a loan or withdraw the value – but this will reduce your death benefit.

3) Participating life insurance

Participating life insurance is a type of permanent life insurance – which offers the added bonus of letting you earn dividends. With these earned dividends, you can either reinvest them to help reduce the cost of your premiums or withdraw them as cash.

As with all life insurance policies, upon your death, your beneficiaries will receive a tax-free death benefit to spend as they deem fit.

4) Universal life insurance

Universal life insurance is also another form of permanent life insurance. Along with a tax-free death benefit, Universal Life also lets you invest extra money (if you choose) that can grow in a tax-advantaged account! With universal life insurance, you can provide for your beneficiaries upon death while saving extra cash for yourself or your business.

We can help!

If you are unsure what kind of life insurance is best for you, give us a call today! We can answer any questions about these different kinds of life insurance and what features and benefits are best for you.

Don’t lose all your hard-earned money to taxes

Don’t lose all your hard-earned money to taxes

Tax planning is an essential part of managing your money – both while living and after your death. You want to maximize the amount of money to your beneficiaries, not the government. We have three tips to help you reduce taxes on your hard-earned money:

  1. Make the most of the lifetime capital gains exemption

  2. Decrease your end-of-life tax bill

  3. Look into Immediate Financing Arrangements

Lifetime capital gains exemption

The good news is that you can save a lot of money on taxes using the lifetime capital gains exemption. The bad news is that you could lose out on some of those savings unless you follow all the appropriate steps. Having a financial team to guide you through these steps is essential. When it comes to selling all or part of your business, your lawyer, accountant, and financial advisor must be all on the same page.

End-of-life tax bill

As with the lifetime capital gains exemption, working with your financial team to ensure your affairs are in order is crucial. Without the proper paperwork, your hard-earned money may not go to the family members, friends, or charities you want to support. Take the time to ensure that your wishes are properly documented and that you have filled out all essential paperwork.

Consider an Immediate Financing Arrangement

An Immediate Financing Arrangement (IFA) lets your business:

  • Get a life insurance premium on behalf of a shareholder

  • Create a tax deduction

  • Transfer assets tax-free from the business to a shareholder’s estate

Also, you can use an IFA to help increase your business’ cash flow by pledging the life insurance policy as collateral for a loan. The loan can be invested into the business or other investments if the company does not need the additional cash flow.

The Takeaway

While this can all seem overwhelming, it is essential to make sure you take the proper steps to protect your business and minimize your tax bill. But you don’t have to do this alone – contact us today for expert advice and guidance.

Understanding Registered Education Savings Plans (RESPs) in Canada

What is an RESP?

A Registered Education Savings Plan (RESP) is a unique savings account available in Canada, designed to assist individuals, such as parents or guardians, in saving for a child’s post-secondary education. Notably, anyone can open an RESP for a child. There are two main types of RESPs: single and family plans. Single plans cater to one beneficiary who doesn’t necessarily have to be related to the contributor. In contrast, family plans can cater to multiple beneficiaries, who must be related to the contributor by blood or adoption. This special account type offers significant tax benefits and is structured explicitly to fund a child’s future educational needs.

What are the eligibility requirements to open an RESP?

Opening an RESP requires both the contributor and the beneficiary (the child for whom you’re saving) to be Canadian residents with a valid Social Insurance Number (SIN). The plan can be opened for up to 35 years, and the RESP has a lifetime contribution limit of $50,000. To qualify for the Canada Education Savings Grant (CESG), the beneficiary must be aged 17 or under.

How can my child access their RESP funds for school?

The beneficiary can start withdrawing funds from the RESP as Educational Assistance Payments (EAPs) once they enrol in an eligible post-secondary educational program. EAPs comprise the income earned in the RESP and any government grants. The original contributions made to the RESP can be withdrawn tax-free by the contributor or given to the beneficiary. Given the student’s income level and personal tax credits, they typically remain tax-free.

What are the benefits of an RESP?

RESPs offer numerous benefits. Key among them is tax-deferred growth, which means the investment income generated within the account isn’t taxed as long as it remains in the plan. Also, through programs like the CESG and the Canada Learning Bond (CLB), the Canadian government contributes to your RESP, thereby enhancing your savings. Lastly, RESPs provide a structured path to save for a child’s future education, encouraging consistent savings and financial planning.

How does the Canadian Education Savings Grant work?

The CESG is a government grant that matches a portion of your annual RESP contributions. The standard matching rate is 20% on the first $2,500 contributed each year, leading to a maximum annual grant of $500. However, low-income families may qualify for a higher matching rate. Unused CESG contribution room can be carried forward, allowing for a potential maximum grant payment of $1,000 in a single year. The CESG is available until the beneficiary turns 17, with a lifetime limit of $7,200 per beneficiary.

What is the Canada Learning Bond?

The Canada Learning Bond (CLB) is another program to promote long-term savings for a child’s post-secondary education. It targets children born after 2003 from low-income families. Eligible families receive an initial $500 from the government, directly deposited into the child’s RESP. An additional $100 is added annually until the child turns 15, for a potential total of $2,000. The CLB does not require any contributions to the RESP, making it accessible even for those in a tight financial position.

What are the BCTESG and QESI?

Provincial programs such as the British Columbia Training and Education Savings Grant (BCTESG) and the Quebec Education Savings Incentive (QESI) provide additional incentives for education savings. The BCTESG offers a one-time grant of $1,200 for eligible children, and the QESI provides a refundable tax credit paid directly into an RESP for qualifying Quebec residents.

How do I open an RESP?

Opening an RESP can be done through a financial advisor. You need to provide your SIN and the SIN of the beneficiary. Understanding the terms, conditions, and potential fees linked with the RESP offered by your chosen institution is crucial. You can make regular contributions or contribute lump sums as you see fit. Inquiring about the types of investments available within the RESP is vital, as they can significantly impact the growth of your savings.

In conclusion, while RESPs offer a structured and tax-efficient way of saving for a child’s post-secondary education, they also require careful planning and consistent contributions. Be sure to understand all aspects of an RESP and consider contacting us before starting one.

Understanding Tax-Free Savings Accounts (TFSAs)

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A Tax-Free Savings Account (TFSA) is an investment vehicle available to Canadian residents. It offers numerous benefits, including tax-free growth of your investments and tax-free withdrawals. Before you decide to open a TFSA, it’s essential to understand the eligibility requirements, contribution limits, eligible investments, and withdrawal rules. 


Eligibility Requirements

To open a TFSA, you must be a resident of Canada with a valid Social Insurance Number (SIN) and be at least 18 years old. However, in some provinces and territories, the legal age to enter a contract (which includes opening a TFSA) is 19. The TFSA contribution room for the year an individual turns 18 is carried over to the following year if the individual resides in a jurisdiction where the legal age is 19.


Benefits

One of the primary benefits of a TFSA is that it allows your investments to grow tax-free. Any income you earn from your investments within the TFSA is not taxed, even upon withdrawal. This includes interest, dividends, and capital gains. 

Additionally, you can withdraw any amount from your TFSA at any time, and the withdrawals are tax-free. It’s important to note that withdrawing funds from your TFSA does not reduce the total amount of contributions you have made for the year. The amount withdrawn in a year will be added back to your TFSA contribution room at the beginning of the following year.


Contribution Limit

The annual TFSA dollar limit has varied over the years. From 2009 to 2012, it was $5,000; in 2013 and 2014, it was $5,500; in 2015, it increased to $10,000; from 2016 to 2018, it was $5,500; from 2019 to 2022, it was $6,000, and in 2023, it is $6,500. This annual limit will be indexed to inflation and rounded to the nearest $500. 

The maximum amount you can contribute to a TFSA is determined by your TFSA contribution room. This room is the sum of the TFSA dollar limit of the current year, any unused TFSA contribution room from previous years, and any withdrawals made from the TFSA in the previous year. 

Let’s look at two examples to better understand this:

Example #1: Carry Forward Unused Room to Your Current Contribution

In 2020, the annual TFSA contribution limit is $6,000. If you only contribute $5,000, you would have $1,000 of unused room. This unused room gets carried over to the next year. So, in 2021, the annual contribution room is $6,000, but because of the unused room from 2020, you actually have a total contribution room of $7,000 ($6,000 for 2021 + $1,000 carried over from 2020).

Example #2: Reclaim Your Contribution Room in the Following Year When You Make a Withdrawal

In 2021, you have $7,000 in contribution room and decide to contribute the full amount. However, you also decide to make a withdrawal of $1,000 in 2021. In 2022, the annual contribution limit is $6,000, but because of the withdrawal made in 2021, you actually have a total contribution room of $7,000 ($6,000 for 2022 + $1,000 withdrawn in 2021).

Please note that if you exceed your available TFSA contribution room at any time in the year, you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account.


Eligible Investments

The types of investments that are permitted in a TFSA are generally the same as those allowed in a Registered Retirement Savings Plan (RRSP). These include cash, segregated funds, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates, and bonds.


Withdrawals

As mentioned earlier, you can generally withdraw any amount from the TFSA at any time, depending on the type of investment held in your TFSA. However, if you decide to replace or re-contribute all or a part of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room. 

For example, if in 2023 you withdraw $1,000 from your TFSA and later in the same year decide to re-contribute that amount, you can only do so if your contribution room for 2023 allows for it. If it doesn’t and you re-contribute the $1,000 anyway, you will be considered to have over-contributed to your TFSA in that year. This will result in a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account


Beneficiary

When establishing a Tax-Free Savings Account (TFSA), you are given the choice to designate a beneficiary. This person will be the recipient of the investments within your TFSA in the event of your death. The assets inherited by the beneficiary are not considered income, and as such, are received tax-free. It’s important to note, though, that while the inherited amount is tax-free, the beneficiary will be responsible for any tax on earnings that the TFSA generates after the original account holder’s death. 


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Why A Buy-Sell Agreement Is Vital For Your Business

Why A Buy-Sell Agreement Is Vital For Your Business

The purpose of a buy-sell agreement is to establish a set of rules or actions (that are legally binding) for what must happen to a business if one or more of the business owners is no longer involved.

Why does my business need a buy‐sell agreement?

A buy-sell agreement is vital for your business as it protects the shareholders and the business itself if one of the partners exits the business for any reason.

A buy-sell agreement offers so many benefits for your business. It:

  • Can help maintain the continuity of your business.
  • Minimize disputes between remaining co-owners and the family of the departing owner.
  • Decrease stress and uncertainty for all business owners.
  • Protect business assets and liquidity by including a solid financial and tax plan.

What are the different types of buy-sell agreements?

These are the most common types of buy-sell agreements:

  • A cross-purchase agreement. In this agreement, each remaining shareholder agrees to buy a percentage of the shares owned by the departing shareholder. The purchase can be funded by life insurance in case of the death of one of the shareholders.
  • A promissory note agreement. Each shareholder has corporate-owned life insurance in this agreement, and the corporation is the beneficiary. If a shareholder dies, the surviving shareholder(s) use a promissory note to purchase the deceased’s shares from their estate. The shareholders then use a capital dividend provided by the life insurance to pay off the promissory note.
  • A share redemption arrangement. This is similar to the promissory note agreement set up, but no promissory note is involved, and the capital dividend account pays for the deceased shareholder’s shares.

What do I need to cover in my buy‐sell agreement?

Your buy-sell agreement must address the following:

  • Valuation of the company.
  • Ownership interests.
  • Buyout clauses.
  • Terms of payment.
  • What will happen in the event of any “triggering events.”. These events can include a disagreement between business owners, a business owner getting divorced or retiring, a business owner going bankrupt or becoming disabled, or a business partner dying.

What is the best way to fund my buy-sell agreement?

This needs to be addressed when putting the buy-sell agreement together and can be challenging in the case of some “triggers,” such as a business owner getting a divorce or a disagreement between business owners.

In the case of the death of a business owner or a business owner becoming disabled, the buy-sell agreement can be funded by insurance. Insurance provides both immediate capital and significant tax benefits.

We Can Help!

Buy-sell agreements can be complex and challenging, but they are vital to protect your business and your personal interests. We can explain the best way to set one up – reach out to us today to get started!