Canadians who take the time to plan ahead will find that opportunities around personal taxes can be more than a holiday wish. EY suggests the following 10 questions for Canadians as they plan their tax returns for 2017.
1. Do you income-split private corporation business earnings with adult family members?
The federal government introduced proposals that may limit income-splitting opportunities with adult family members through the use of private corporations beginning in 2018. Help your client consider maximizing income splitting with adult family members by distributing private corporation business earnings to them before year-end.
2. Do you receive non-eligible dividend income?
The tax rate applicable to non-eligible dividend income will be increasing for dividends received on or after Jan. 1, 2018. If clients have discretion over the amount of dividends received, they may want to consider receiving more non-eligible dividends prior to year-end. But be sure to weigh the savings of the lower non-eligible dividend tax rate against the tax deferral available by retaining income within the corporation.
3. Do you hold passive income?
The federal government has proposed to increase tax on passive earnings above a $50,000 threshold that will apply on a go-forward basis. Draft legislation is expected to be released along with the spring 2018 federal budget. Discuss whether optimizing grandfathering makes sense for your clients.
4. Do you have capital gains?
Although the government has indicated that it won’t proceed with proposals to restrict access to the lifetime capital gains exemption and other capital gains planning, it’s important to review capital gains transactions.
5. Have you paid your 2017 tax-deductible or tax-creditable expenses yet?
There are a variety of expenses, including interest and childcare costs, which can only be claimed as deductions in a tax return if the amounts are paid by the end of the calendar year. Help clients check on expenditures that give rise to tax credits, and consider if the deduction or credit is worth more to them this year or next.
6. Have you maximized your tax-sheltered investments by contributing to a TFSA or an RRSP?
Tell clients to make TFSA and RRSP contributions for 2017, and catch up on prior non-contributory years. In order to maximize tax-free earnings, consider making 2018 contributions in January. If clients are considering making an RRSP withdrawal under the Home Buyers’ Plan, tell them they can withdraw up to $25,000 from their RRSPs with no tax withheld, but must acquire a home by October of the following year. The funds must be repaid over 15 years starting the second calendar year after withdrawal. So if clients can, wait until January 2018 before making the withdrawal.
7. Have you maximized your education savings by contributing to an RESP for your child or grandchild?
Tell clients to make RESP contributions for children or grandchildren before the end of the year. With a contribution of $2,500 per child under the age of 18, the federal government will contribute a grant (CESG) of $500 annually.
8. Is there a way for you to reduce or eliminate your non-deductible interest?
Interest on funds borrowed for personal purposes is not deductible. Where possible, consider using available cash to repay personal debt before repaying loans for investment or business purposes on which interest may be deductible.
9. Have you had any investment losses or gains?
Analyze if clients have any accrued losses to use against realized gains, and determine if they have realized losses to carry forward.
10. Have you thought any more about estate planning?
Tell clients now is the time to update their wills and consider if there are changes to their life insurance needs. It may be the right time to consider an estate freeze to minimize tax on death and/or probate fees. Developing a comprehensive succession plan can help them pass the benefit of their assets.