Tax topics we’re thinking about this fall


Editor’s Note: This article was originally published on September 10 ahead of the 2021 federal election.

MaryAnne Loney is a specialized tax partner in the Edmonton office of McLennan Ross LLP.

EDMONTON – The summer 2021 heatwaves are now expected to be over, the kids are heading back to school and we are approaching the final term of 2021. The final term is a time when many business owners will often be implementing tax planning and corporate reorganizations in order to complete them before the end of the year.

The past two years have been crazy for everyone, business owners as well as anyone. However, while COVID is not over, it has become familiar, and while many risks and uncertainties remain, many people are also looking beyond mere survival and considering longer-term planning.

This seems like a good time to highlight what is happening with Canadian taxes – or at least the main topics that we are watching and that we think may be of interest to our clients.

Bill 208

As explained in a previous article found Here, Bill 208 (the “Bill”) was passed by Parliament in June, making it easier for parents to pass their active businesses on to their children and grandchildren (through changes to section 84.1 of the law Income Tax Act) and for the division of companies between brothers and sisters (by modifications to article 55 of the Income Tax Act).

This bill is interesting not only because it fundamentally changes the tax rules for family corporations, but also because it was a private member’s bill passed with the support of members of Parliament from all over the world. parties, including several Liberals.

This law is already in effect, so if you are looking to reorganize or transition family businesses, now is your opportunity to do so in a way that limits future taxes.

The timing of any reorganization or transition could potentially be critical because, while the Liberal government has said it supports the goals of the bill, it has also indicated that the government will change it, although no amendments are in effect. before at least November 1, 2021.

Tax practitioners generally think changing the law is a good idea, so it will likely be changed regardless of who wins the election (although the exact way it is changed may vary). Probably because it was not drafted by Finance, the bill presents significant problems. For example, it does not match well with the rest of the Income Tax Act, may allow tax evasion beyond the objective of the legislation and certainly leaves a great deal of uncertainty as to exactly how it will be applied.

This means that the bill is a law that could potentially make a huge difference to many of our clients, but we don’t really know how the law works now or how it will work in the future.

Accordingly, we look forward to future government comments (whatever it is), paying close attention to other comments on the bill and trying to help clients determine if the bill has any relevance. impact on what they need to do.

Tax incentives for capital investments

While we never know what future tax changes the government will make, that uncertainty inevitably increases in an election year as we don’t know who will be in government in a matter of weeks.

Without doing a thorough study of all party tax proposals, it is worth noting that both the Liberals and the Conservatives offer tax incentives for capital investments.

The Liberals have indicated they will continue to move forward with plans to allow Canadian-controlled private companies to immediately deduct up to $ 1.5 million in “growth investments” announced in their 2021 budget ( see here for a budget commentary).

The Conservatives are proposing to grant a 5% investment tax credit for any capital investment made in 2022 and 2023, with the first $ 25,000 being refundable for small businesses and a 25% tax credit on amounts up to $ 100,000 that Canadians personally invest in a small business. over the next two years.

The Liberals and Conservatives are also proposing additional tax credits / tax incentives to encourage investment in green technology and businesses.

Therefore, 2022 could be a good year for companies to consider making significant capital investments, especially “green” investments. Businesses can take advantage of this by planning their own capital expenditures or by selling their products and services to clients who incur capital expenditures.

Future taxes and the ‘rich’ review

The “rich” seem to pass for the “bad guys” when you read party platforms.

Even the Conservatives have said they will focus the efforts of the Canada Revenue Agency (“CRA”) on wealthy tax evaders and big business and that they will explore the possibility of introducing new taxes on frequent travelers. , luxury non-electric vehicles and luxury second homes.

The Liberals’ platform proposes to introduce a new minimum tax for everyone who qualifies for the top tax bracket, so that they will have to pay at least 15% of their taxable income. It is not clear how this will differ from the minimum tax that already exists in Articles 127.5-127.55, the Income Tax Act, but we would assume that this could impact high income earners in the years they claim large deductions and credits.

The Liberals also plan to dramatically increase the CRA’s resources to tackle “aggressive” tax planning by the “rich” and to “modernize” the general regime of anti-avoidance rules. This could increase the uncertainty associated with tax planning.

NDP platform proposes to increase the top marginal tax rate by 2%, a wealth tax of 1% for taxpayers over $ 10 million and increase the inclusion rate of earnings in capital from 50% to 75%. While we do not expect the NDP to form government, the Liberals may depend on them for power.

Likely, regardless of who wins the election, the CRA’s scrutiny will continue to increase on “rich” individuals (although the exact identity of the rich is not necessarily clear). It will therefore be all the more important that the affairs of the “rich” are in order, regardless of who wins the election, as there will be a higher risk of audits.

If the Liberals win, those who might be targeted by an expanded minimum tax might also want to earn income before the potential changes.

Are the business owners’ affairs in order?

As indicated above, the Liberals certainly, but also even the Conservatives, talk about increasing the surveillance of the CRA, in particular of the “rich”. As detailed here, starting this year, there are increased reporting requirements for trusts, and as detailed here there is a general trend towards additional disclosure requirements for companies. All of this suggests scrutiny of businesses and their owners at a higher level than ever before.

Tax laws have also changed dramatically over the past decade and the past two years have been chaotic, resulting in many business and personal changes.

In light of all of the above, we suspect that many business structures and estate plans may now be dated and need to be reviewed. Some of the questions that individuals and businesses should be asking are:

Do estate plans and corporate structures take into account current tax legislation? Are they taking advantage of tax opportunities while limiting administrative costs? Or is the structure unnecessarily complicated, designed to take advantage of tax opportunities that are no longer available?

Do corporate structures reflect where the business is today and where owners see it evolving over the next decade? Should assets be moved for liability protection or in anticipation of future business transitions?

Are unanimous shareholder agreements coordinated with shareholders’ wills and estate plans? Or do they create conflict and uncertainty?

What are your CRA audit risks and are you ready for the scrutiny of a CRA audit?

While it’s always important to periodically review your affairs, given all that has changed recently, perhaps now is a particularly good time for a more comprehensive review, not only from a tax perspective, but also. from a corporate and estate perspective.

Proactively reviewing your affairs and making sure they are in order given recent changes can ultimately save taxes and other significant expenses in the long run. All too often, as lawyers, we are drawn into costly and disorderly fights that could have been avoided with proper planning and planning.

MaryAnne Loney is a specialized tax partner in the Edmonton office of McLennan Ross LLP.

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