Renewing Your Group Benefits Plan

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When it’s time to renew your organization’s group benefits plan, it’s a chance to step back, take a close look, and ensure everything still makes sense for your team and budget. Each year, your provider will review past claims and usage to help adjust coverage and premiums, so the plan remains relevant. Here’s how to get the most out of this process.

Reviewing Your Benefits: Focus on What Matters

Take time to examine each part of your benefits package to see if it still meets the needs of your team:

  • Health Coverage: Look at what’s covered for prescription drugs, hospital care, and specialist visits. Are the current limits in line with what your team uses most?
  • Dental Coverage: From cleanings to crowns, check that the plan covers routine and advanced dental needs. If usage is low, maybe it’s time for an update.
  • Disability and Life Insurance: Disability insurance protects income during tough times, while life insurance gives peace of mind. Make sure coverage levels are right for your team.
  • Critical Illness and Accident Insurance: These benefits can provide extra financial support for serious illnesses or accidents, with options for additional coverage if it’s a priority for employees.

Specialty Benefits That Add Flexibility

Consider adding options that give employees more control over their benefits:

  • Health Care Spending Accounts (HCSAs): With HCSAs, employees have a set allowance to cover eligible health expenses. This flexibility lets employees pick and choose the coverage that fits their needs.
  • Emergency Medical Coverage: This can be particularly valuable for employees who travel frequently, covering unexpected medical costs on the road.
  • Retiree and Self-Employed Benefits: If you offer benefits for retirees or contractors, make sure these plans focus on the essentials, like prescriptions, dental, and vision, to keep things simple and effective.

Checking Value and Staying on Budget

Once you know what you’re covering, see if it aligns with what your team values most and if it’s worth the premium cost:

  • Utilization Analysis: Look at which benefits are most used. If something like dental care isn’t being used much, that could mean there’s room to adjust.
  • Employee Feedback: Ask employees directly what benefits do they find most valuable? This feedback can guide your decisions.

Making the Right Adjustments

When you have the full picture, it’s time to consider if adjustments would make the plan stronger or more efficient:

  • Benefit Modifications: Maybe it’s time to add a health spending account, adjust critical illness coverage, or tweak other benefits to better reflect what employees want.
  • Cost-Sharing Adjustments: Evaluate how the premium costs are split. Adjusting the cost share may help keep the plan sustainable for everyone.

With the right approach to your group benefits renewal, you can keep your plan valuable, easy to understand, and tailored to what your team needs most. This way, you’re not just offering a benefits package—you’re providing a solution that works.

Understanding Taxes Payable at Death in Canada

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A common belief among Canadians is that they will be taxed on money they inherit. However, Canada does not impose an inheritance tax. Instead, after someone passes away, their final tax return must be filed, covering the income they earned up to the date of death. Any taxes owed are paid from the estate’s assets before the remaining funds are distributed to the beneficiaries.

While there isn’t an inheritance tax in Canada, other costs are associated with settling an estate. It’s important to understand these costs and how the process works.

Is There an Estate Tax in Canada?

Canada doesn’t have a traditional estate tax, but there are taxes and fees that apply after death. The Canada Revenue Agency (CRA) ensures that taxes are paid on any income earned up to the date of death. If there is a tax balance owing, the executor of the estate must file a final tax return and settle any outstanding taxes.

Earned Income

When you pass away, any earned income up to the date of death is included in your final tax return. This includes salary, wages, and other forms of income earned before death.

Deemed Disposition

Deemed disposition occurs when all your assets are treated as if they were sold at their current market value upon death. This means the difference between the original purchase price and the market value at the time of death is considered a capital gain.

Capital Gains:

If your assets have increased in value, the difference (capital gain) is taxable. Effective June 25, 2024, 50% of this gain is included in your income unless the total gain exceeds $250,000, in which case any amount above the first $250,000 the inclusion rate increases to two thirds.

What Property Does Deemed Disposition Apply To:

  • Non-Registered Investments: Securities, Mutual Funds, ETFs, Bonds
  • Income Properties
  • Businesses
  • Other Assets

Deemed Withdrawal

Deemed withdrawal applies to registered accounts such as RRSPs and RRIFs. The total value of these accounts is added to your income for the year of death, potentially leading to a significant tax liability.

Example: Earned Income, Deemed Disposition, and Deemed Withdrawal (Effective June 25, 2024)
Let’s consider an example to illustrate how earned income, deemed disposition, and deemed withdrawal work together, including how much of the estate is kept after taxes and how much is paid in taxes:

Scenario:

  • John earned $60,000 in salary up to the date of his death.
  • He owns an income property, stock portfolio and an RRSP.
  • Income Property: Purchased for $200,000, now worth $500,000.
  • Stock Portfolio: Purchased for $50,000, now worth $100,000.
  • RRSP: Total value of $150,000.

Earned Income:

  • John’s earned income of $60,000 is included in his final tax return.

Deemed Disposition:

1.  Income Property:

  •    Original Purchase Price: $200,000, Market Value at Death: $500,000
  •    Capital Gain: $500,000 – $200,000 = $300,000
  •    First $250,000 taxed at 50%: $125,000
  •    Remaining $50,000 taxed at two-thirds: $33,333
  •    Total Taxable Gain: $125,000 + $33,333 = $158,333

2.  Stock Portfolio:

  •    Original Purchase Price: $50,000, Market Value at Death: $100,000
  •    Capital Gain: $100,000 – $50,000 = $50,000
  •    Taxable Portion: 2/3 of $50,000 = $33,333 (Net capital gains exceed $250,000)

Deemed Withdrawal:

  • RRSP Value: $150,000
  • Added to Income: $150,000

Total Taxable Income Calculation:

  • Earned Income: $60,000
  • Taxable Gain from Income Property: $158,333
  • Taxable Gain from Stocks: $33,333
  • RRSP Added to Income: $150,000
  • Total Taxable Income: $60,000 + $158,333 + $33,333 + $150,000 = $401,666

Tax Liability:

  • Assuming John’s tax rate is 30%, his tax liability would be:
  • Total Tax Owed: 30% of $401,666 = $120,500

Estate’s Remaining Value:

  • John’s estate would need to pay $120,500 in taxes, which is 16.06% of the total estate value.
  • If the total value of the assets is $750,000 (including the stock portfolio, income property, and RRSP), the remaining value after taxes would be:
  • Remaining Estate Value: $750,000 – $120,500 = $629,500, which represents 83.93% of the estate.

So, after paying $120,500 in taxes, John’s estate would keep $629,500 to be distributed to the beneficiaries.

Strategies to Address Estate Taxes

To manage the tax burden on your estate, several strategies can be considered:

  1. Spousal Rollovers: Deferring taxes on RRSPs, RRIFs, and other assets by transferring them to your spouse can delay the tax liability until those assets are withdrawn or disposed of.
  2. Gifting Assets: Spreading out the gifting of assets over several years can reduce the overall taxable income in the year of death.
  3. Use of Life Insurance: Life insurance can provide funds to cover taxes, ensuring that your estate remains intact for your beneficiaries.
  4. Planning with a Will: Creating a detailed will that considers tax implications can help in minimizing the taxes payable and ensure your wishes are followed.
  5. Consider Trusts: Setting up trusts can be a way to manage and protect your assets, potentially reducing tax burdens.

Implementing these strategies effectively requires careful planning and consideration of your unique circumstances. Professional guidance can help tailor these strategies to your needs.

Understanding these rules helps in planning your estate effectively. For more personalized advice, feel free to contact us.

Understanding the Registered Education Savings Plan (RESP)

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Planning for your child’s education can be both exciting and overwhelming. The rising costs of post-secondary education make it important for parents and families to consider the financial tools available to help ensure children have the opportunity to pursue their educational dreams. One such tool is the Registered Education Savings Plan (RESP), a tax-deferred savings account specifically designed to help save for a child’s post-secondary education in Canada.

Eligibility and How to Open an RESP

You can open a Single Plan for an individual beneficiary, such as your child, or a Family Plan if you wish to contribute to the education of multiple children in your family. The great news is that anyone can open an RESP for a child, whether you’re a parent, grandparent, or other family member, making it a versatile option for educational savings.

RESP Withdrawals and Beneficiary Requirements

RESPs can be used to cover a broad range of educational expenses. The only stipulation is that the beneficiary must attend a qualifying educational institution, which could be a university, college, or technical or vocational school. Withdrawals from the RESP will help support tuition, textbooks, living expenses, and more, as long as the student is enrolled part-time or full-time.

Key Benefits of an RESP

RESPs come with a range of benefits that make them an attractive savings vehicle for education:

– Lifetime Contribution Limit: You can contribute up to $50,000 over the lifetime of the plan for each beneficiary.

– Tax-Deferred Growth: While contributions to an RESP are not tax-deductible, the investment growth within the plan is tax-deferred. This allows your savings to grow faster, as taxes on the earnings are deferred until the funds are withdrawn.

– RESP Duration: You can keep the plan open for up to 35 years, giving you ample flexibility for when the funds may be needed.

Canadian Education Savings Grant (CESG)

One of the biggest incentives for opening an RESP is the Canadian Education Savings Grant (CESG). Through this program, the government will match 20% of your annual contributions, up to a maximum of $500 per year. Over time, this can accumulate to a lifetime maximum of $7,200 in CESG funds for each child. If you’re unable to contribute the maximum amount in a given year, the unused CESG contribution room is carry-forwardable, and you may be able to receive up to $1,000 in grant payments annually in future years.

Eligibility for CESG

To qualify for the CESG, the beneficiary must be:

– 17 years of age or younger

– A Canadian resident

– In possession of a valid Social Insurance Number (SIN)

A Smart Way to Save for the Future

Starting an RESP early can make a significant difference in how much you can save for your child’s education. With contributions that grow tax-deferred, along with generous government grants like the CESG, the RESP is a valuable tool to help ease the financial burden of post-secondary education. Planning for your child’s future today ensures that when the time comes, they can focus on their studies without worrying about the costs.

Consider opening an RESP to take advantage of the substantial benefits and opportunities this plan offers. Start investing in your child’s future today!

What is disability insurance?

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If you cannot work because you are seriously injured or ill, disability insurance will provide you with a monthly, tax-free income to help replace your lost wages.  An injury does not have to be as blatant as a broken leg or arm – suffering from chronic pain or dealing with mental health issues can also qualify you for a disability insurance payout.  

Why do I need disability insurance?

Unfortunately, people become disabled – whether temporarily or permanently – quite often. In 2017, over 20 percent of Canadians had one or more disabilities. 

If you’re disabled, you may lose one of your most valuable assets – your ability to work and bring in a paycheck. Disability insurance can help replace that paycheck for as long as you need it to. Being able to rely on a disability insurance payout means you won’t have to dip into your savings if anything happens to you.

Disability insurance is especially important if you are self-employed, particularly if you are the family’s sole income earner.

What if I already have disability insurance through work?

If you have disability insurance through work, that’s great – but it may not replace 100 percent of your paycheck, especially if you’re off work for a long time. If you purchase private disability insurance, you can:

  • Choose how much coverage you want.
  • Adjust your coverage as needed.
  • Not have to worry if you leave your employer – you won’t lose your disability insurance coverage.

Having private disability insurance will give you peace of mind that you either have additional coverage if you are employed and at least some disability coverage if you lose your job.

How does disability insurance work?

We’d be happy to answer any questions you have about disability insurance. There are five main steps to disability insurance:

  1. Determine the amount of coverage you want. The higher your salary, the more coverage you should get.
  2. Pay your monthly premiums. Factors like your health, your age, and the amount of coverage you have will all impact the cost of your premiums.
  3. File a claim if you become disabled – we can help you with this.
  4. Receive your monthly payments once your waiting period has passed – a longer waiting period can lower your premiums, but it does mean you’ll go longer without any income.
  5. When you are healthy enough to return to work, or your coverage period runs out, you will stop receiving disability insurance payments.

We’re Here To Help

If you’d like to know more about disability insurance – from how much it would cost you to what you can file a claim for – we’re here to help! Give us a call today.

Getting Ready for Money Emergencies

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Life can throw unexpected events your way that can hit you in the wallet. Whether it’s falling ill, getting laid off, or facing hefty repair bills for your car or home, these situations can strain your finances. To stay ahead and avoid falling into debt, it’s a good idea to have an emergency fund. This is cash you set aside specifically to handle unforeseen expenses, so you’re not left scrambling for money when the unexpected happens.

Why Emergency Funds Matter

An emergency fund is like an insurance policy for unexpected expenses that everyone can benefit from. It’s a stash of money specifically saved to cover daily living costs during emergencies that catch you off guard, such as:

  • Sudden car repairs

  • Vet visits

  • Losing your job

  • Sudden home repairs

  • Medical emergencies

Creating an emergency fund helps you to:

  • Deal with surprise costs without going into debt

  • Stay away from expensive loans like payday loans or credit card cash advances

  • Keep control of your finances

  • Feel less worried about unexpected expenses.

An emergency fund offers peace of mind during life’s surprises, preventing debt by covering costs without needing to use up savings or retirement funds, which could result in extra fees.

How much do you need?

The amount you should save depends on your financial situation, like how much you earn, what you spend each month, and if you have any dependents. A good rule is to have enough money to cover three to six months of necessary expenses, like rent, groceries, bills, and childcare.

How to Build Your Emergency Fund

Building an emergency fund to cover three to six months of essential living expenses might feel overwhelming, but the key is to start saving gradually. Even putting away a small amount regularly can add up significantly over time.

Here are some ways to build up your emergency fund:

  1. Automate your savings: Pick how much money you want to save, when you want to save it, and how often. Then, arrange for the money to be automatically moved from your regular account to your savings account. You can set up this automatic transfer to happen on your payday. That means the money you’ve chosen to save will be moved as soon as your paycheque is put into your account.

  2. Take advantage of opportunities to boost your emergency fund whenever you can. This might happen when you get extra money, like a tax refund, a pay raise at work, or when you sell things such as a car. Even receiving money as a gift or getting a bonus from your job can help. Additionally, when you finish paying off a loan, consider putting the money you used for payments into your emergency fund instead. Since you’re already used to budgeting for those payments, it’s an easy way to increase your savings without much extra effort.

  3. Make it a habit: Make saving a regular part of your routine by incorporating it into your daily habits. Here are some simple tips to help you get started: drop any loose change into a container whenever you come home, set up a savings, mark your saving dates in advance on your calendar, and use sticky notes on your fridge to remind yourself to save regularly. These small actions can make a big difference in building your savings over time.

Where to keep your emergency fund?

Given that emergencies can occur unexpectedly, having quick access to your funds is important. Although a regular chequing account may offer immediate access to your money, it’s best to keep your emergency fund separate from your regular account. This prevents accidental spending on non-emergencies. Look for an account that:

  • Is distinct from your regular spending account

  • Has minimal or no transaction fees

  • Permits penalty-free withdrawals

  • Earns interest on your savings

Consider exploring “cash equivalents” as an option to invest your money. They’re a bit like cash but can also help your money grow with interest. They’re safe and easy to get your money from. But before you decide, make sure you understand how and when you can take your money out and if there are any extra fees or charges. Examples of cash equivalents include:

  • Savings accounts

  • Chequing accounts

  • High-interest rate savings accounts (HISA)

  • Guaranteed Investment Certificates (GIC)

  • Money market funds

Having an emergency fund can be a lifeline during tough financial times, preventing you from falling into debt. While there’s no fixed amount you should stash away, assessing your financial situation can guide you in determining your ideal emergency fund size. If you need assistance in planning your emergency fund, don’t hesitate to reach out to us for personalized guidance and support.

Contact Us

Network of Professionals

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Our Network of Professionals

As a financial advisor, my primary goal is to help you achieve financial clarity. I do this by accessing a network of dedicated professionals, each bringing their unique expertise to the table. Together, we provide personalized advice and services that help you make informed decisions and secure your future.

Financial Advisor

Think of me as your financial coordinator. I help you figure out your goals, create plans to achieve them, and keep everything on track. Whether it’s planning for retirement, managing investments, or saving for a major purchase, I have access to a network of professionals who ensure every aspect of your financial life works together smoothly.

Accountant/Tax Professional

Having an accountant or tax professional in your financial network is essential for keeping your financial records in order. They handle tasks like bookkeeping, preparing financial statements, and assisting with tax planning. Their role is particularly important during tax season. They help you file your taxes accurately and on time, taking the stress out of the process. By optimizing your tax strategies and ensuring everything is reported correctly, they help you save money. Their skills are invaluable for both your immediate needs and long-term financial planning.

Investment Advisor

Investment advisors focus on building and managing investment portfolios tailored to your short-term, medium-term, and long-term goals. They thoroughly research the market, evaluate investment opportunities, and offer valuable insights to help you create a well-rounded portfolio. Whether you’re saving up for a major purchase, planning for retirement, or aiming for other financial milestones, they assist in choosing the right investment vehicles, such as RRSPs, TFSAs, RRIFs, and non-registered accounts, to support your financial stability and future needs.

Life Insurance and Living Benefits Advisor

Life insurance and living benefits advisors are here to help you protect your greatest asset: yourself. Their job is to make sure you and your family are financially secure if unexpected events occur. These advisors walk you through different insurance options, including disability insurance, critical illness insurance, and life insurance, to find the coverage that fits your needs best. By understanding your unique situation and recommending the right policies, they provide you with peace of mind, knowing that you have a safety net in place for life’s uncertainties.

General Insurance Specialist

General insurance specialists cover a wide range of insurance needs, including auto, property, travel, and liability insurance. They assess your risks and recommend policies that provide the protection you need. Their advice helps you understand your options, compare quotes, and select the best policies to safeguard your assets, ensuring you are well-protected in various aspects of your life.

Banker

Bankers are there to help you navigate a wide range of financial services, especially when it comes to getting loans and credit products. They offer advice on securing personal loans, understanding credit options, and managing debt effectively. Whether you’re looking to finance a major purchase, consolidate debt, or build your credit, bankers provide the support and guidance you need to make informed financial decisions.

Mortgage Broker

Mortgage brokers assist you in securing financing for property purchases by accessing multiple lenders on your behalf. They assess your financial situation, compare mortgage products from various sources, and recommend the best options for you. With their ability to shop around and understand different interest rates, loan terms, and application processes, they ensure you get the best possible mortgage deal, making homeownership more accessible and affordable.

Realtor

Realtors are your go-to professionals for buying or selling property. They provide market insights, negotiate deals, and manage the legal aspects of real estate transactions. With their knowledge of local market trends and property values, realtors help you make informed decisions whether you’re purchasing a home, investing in real estate, or selling property.

Legal & Estate Professional

Legal and estate professionals play a vital role in your financial planning by handling the legal side of things, such as estate planning, wills, trusts, and probate. They make sure your assets are distributed according to your wishes and that all the necessary legal documents are properly set up. Their guidance helps you reduce estate taxes and smoothly navigate the legal processes, ensuring your wealth is transferred to future generations just as you intended.

Having a network of financial professionals is essential for achieving financial well-being. Each member brings their own expertise to address different aspects of your finances, from investments and insurance to legal and real estate matters. As your financial advisor, I act as the coordinator, ensuring that all these professionals work together seamlessly. By leveraging their combined knowledge and skills, you can gain financial clarity and know that every aspect of your financial life is taken care of.

Ready to take control of your financial future? Contact us today.

Exploring the Value of Group Benefit Plans for Your Employees

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In today’s ever-evolving workplace landscape, employees place a premium on several key factors:

1. Alignment with employer values, especially sustainability.

2. Achieving a harmonious work-life balance.

3. Assistance in coping with the rising cost of living expenses.

4. Opportunities for delayed retirement.

5. Cultivating a sense of belonging within the workplace.

6. Flexibility in terms of work hours and location.

7. Ensuring job security.

If your business is experiencing growth and you’re considering adding group benefit plans to your employee offerings, you’re in the right place. We understand the importance of providing the right employee benefits solution for your business.

Understanding Group Benefit Plans and Their Value

Group benefit plans form a crucial part of a company’s total compensation package, available to employees regardless of their seniority, position, or qualifications. These plans often encompass medical coverage for employees and their dependents. While it may seem like an additional expense during a period of growth, offering employee insurance benefits is essential for the long-term sustainability of your business.

So, why should your company consider offering group insurance benefits? Here are some compelling reasons:

1. Convenience: Group insurance benefits simplify healthcare coverage for your employees and their families.

2. Workforce Protection: These benefits provide a safety net for your staff, promoting their well-being.

3. Staff Retention: Offering benefits can help you retain valuable employees, reducing turnover.

4. Tax Benefits: Group insurance plans offer tax advantages for both employers and employees.

5. Customization: Plans can be tailored to meet your business’s unique needs.

6. Morale Boost: Providing benefits can boost productivity and morale among your workforce.

What’s Covered by Group Insurance Plans?

Group insurance plans typically cover medical-related expenses that provincial healthcare plans might not fully address. This coverage can include paramedical and ambulance services, dental care, eye care, hospital stays, and certain prescription drugs. Additionally, you have the option to combine group benefits plans with retirement and savings plans.

Types of Group Benefits Plans

Various types of group benefits plans are available, each catering to different company needs and preferences. The most popular options include:

1. Fully-Insured

2. Self-Funded

3. Level-Funded

No matter the size of your business, there’s a group insurance benefit plan that suits your needs. We offer flexible and innovative plans that anticipate your requirements. Our services aim to reduce your administrative workload, allowing you to focus on critical aspects of your business.

Is Group Insurance Cost-Effective?

One of the financial advantages of group insurance is lower premiums while maintaining coverage equivalent to individual health insurance. Typically, employers cover most of the group benefit plan costs, with employees contributing a small percentage of their salary towards the monthly premium. If you’re concerned about the tax implications of providing benefits at work, it’s advisable to with us for specific details.

In conclusion, offering group benefit plans is a strategic move to attract and retain top talent while promoting employee well-being and financial security. Whether you have a small or large business, we are here to assist you in finding the right plan that aligns with your organization’s needs and objectives.

Stay Ahead in 2024: A Comprehensive Checklist for Federal Tax Updates

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With the upcoming 2024 Canadian tax rule changes, it’s important to review your financial strategies. We’ve identified the key changes that we expect to influence financial decisions for investors, business owners, incorporated professionals, retirees, and individuals with high income or net worth.


Capital Gains Inclusion Rate

Starting on June 25, 2024, the tax on capital gains is changing. Until now, you would only have to include half of your capital gains in your income for tax purposes. But after that date, you’ll have to include two-thirds of any capital gains over $250,000 on your tax return. This is also the case for employee stock options. 

Consequently, for corporations and trusts, they will have to include two-thirds of all their capital gains, no matter the amount. This is a significant change. 


Lifetime Capital Gains Exemption (LCGE)

The budget proposes increasing the LCGE for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. This change increases tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.


Alternative Minimum Tax (AMT)
The 2023 budget included updates to the AMT, suggesting revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.


Employee Ownership Trust (EOT)

The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met. 


Canadian Entrepreneurs’ Incentive

This new tax measure offers a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years. However, it’s important to know that not all businesses qualify—this doesn’t apply to businesses in professional services, finance, real estate, hospitality, arts, entertainment, or personal care.

Below is a checklist to help you navigate the tax adjustments and ensure your financial plans are updated and aligned with the new rules.


Investors

  • Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate.

  • Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.

  • Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.

  • Employee Stock Options: Adjust the timing of exercising stock options to align with the upcoming changes in inclusion rates.


Business Owners:

  • Corporate Investments: Assess the impact of increased inclusion rates on corporately held assets, exploring the timing of gains realization. Review trust-held investments. 

  • Lifetime Capital Gains Exemption: Maximize the benefits of the increased LCGE for qualifying business assets.

  • Employee Ownership Trust: Consider the advantages of transferring business ownership via an EOT.

  • Succession Planning: Update your succession plans to consider the potential impact of capital gains tax changes.

  • Entrepreneurs Incentive: Check if you are eligible to reduce capital gains taxes. 


Incorporated Professionals:

  • Investments: Assess both personal and corporate investments for the new inclusion rate. Determine the most tax-effective structure for holding and realizing gains from investments.

  • Succession Planning: Time the potential sale of your professional corporation to capitalize on the current LCGE.


Retirees:

  • Estate Planning: Update estate plans considering the impending increase in capital gains rates.

  • Life Insurance Coverage: Ensure life insurance is adequate to cover increased capital gains tax liabilities upon death.

  • Non-Registered Investments and Retirement Income: Review your strategy for non-registered investments to manage taxes on gains and adjust your retirement income plans to accommodate the upcoming changes in capital gains rates.


Individuals with High Income or Net Worth: 

  • Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate. Review trust-held investments. 

  • Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.

  • Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.

  • Charitable Contributions: Align your charitable giving strategies with the new tax benefits and AMT considerations.

Please reach out to us to review your financial strategy together and ensure it aligns with the upcoming changes. 

2024 Federal Budget Highlights

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On April 16, 2024, Canada’s Deputy Prime Minister and Finance Minister, Chrystia Freeland, presented the federal budget.

While there are no changes to federal personal or corporate tax rates, the budget introduces:

  • An increase in the portion of capital gains subject to tax, rising from 50% to 66.67%, starting June 25, 2024. However, individual gains up to $250,000 annually will retain the 50% rate.

  • The lifetime exemption limit for capital gains has been raised to $1.25 million. Additionally, a new one-third inclusion rate is set for up to $2 million in capital gains for entrepreneurs.

  • The budget confirms the alternative minimum tax changes planned for January 1, 2024 but lessens their impact on charitable contributions.

  • This year’s budget emphasizes making housing more affordable. It provides incentives for building rental properties specifically designed for long-term tenants.

  • Introduces new support measures to aid people buying their first homes.

  • Costs for specific patents and tech equipment and software can now be written off immediately.

  • Canada carbon rebate for small business.

Capital Gains Inclusion Rate

The budget suggests raising the inclusion rate on capital gains after June 24, 2024:

  • Corporations and trusts, from 50% to 66.67%.

  • Individuals, on capital gains over $250,000 annually, also from 50% to 66.67%.

For individuals, the $250,000 annual threshold that applies to net capital gains—the amount remaining after offsetting any capital losses. This includes gains acquired directly by an individual or indirectly through entities such as partnerships or trusts. Essentially, this threshold acts as a deductible, considering various factors to determine the net gains eligible for the increased capital gains tax rate.

Individuals in the highest income bracket, who earn above the top marginal tax rate threshold, will face a higher tax rate on capital gains exceeding $250,000 due to these changes. Furthermore, the budget modifies the tax deduction for employee stock options to align with the updated capital gains taxation rates yet maintains the initial 50% deduction for the first $250,000 in gains. Regarding previously incurred financial losses, the budget plans to adjust the value of these net capital losses from past years so that they are consistent with the current gains, upholding the uniformity with the new inclusion rate.

The budget outlines transitional rules for the upcoming tax year that straddles the implementation date of the new capital gains rates. If the tax year begins before June 25, 2024, but ends afterward, capital gains realized before June 25 will be taxed at the existing rate of 50%. However, gains accrued after June 24, 2024, will be subject to the increased rate of 66.67%. It’s important to note that the new $250,000 threshold for higher tax rates will only apply to gains made after June 24.

Consequently, for individuals earning capital gains beyond the $250,000 threshold and who fall into the highest income tax bracket, new rates will be effective as outlined in the table below. Specifically, this pertains to individuals with taxable incomes exceeding $355,845 in Alberta, $252,752 in British Columbia, $1,103,478 in Newfoundland and Labrador, $500,000 in the Yukon, and $246,752 in all other regions.

Further details and guidance on these new rules are expected to be provided in future announcements.

Lifetime Capital Gains Exemption

The budget proposes raising the Lifetime Capital Gains Exemption (LCGE) for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. Additionally, the exemption will once again be adjusted for inflation starting in 2026. This change aims to increase the tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.

 

Canadian Entrepreneurs’ Incentive

The Canadian Entrepreneurs’ Incentive is a new tax measure which provides a reduced inclusion rate on capital gains from the disposition of qualifying small business shares.

Qualifications for the incentive include:

  • Shares must be of a small business corporation directly owned by an individual.

  • For 24 months before selling, over half the corporation’s assets must be actively used in a Canadian business or be certain connected assets.

  • The seller needs to be a founding investor who held the shares for at least five years.

  • The seller must have been actively involved in the business continuously for five years.

  • The seller must have owned a significant voting share throughout the subscription period.

  • The incentive does not apply to shares linked to professional services, financial, real estate, hospitality, arts, entertainment, or personal care services sectors.

  • The shares must have been acquired at their fair market value.

  • The incentive allows for a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years.

This measure will apply to dispositions after December 31, 2024.

Alternative Minimum Tax (AMT)

The 2023 budget included updates to the AMT, with proposed changes outlined in the summer of 2023. The budget suggests revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.

Further proposed changes to the AMT include:

  • Permitting deductions for the Guaranteed Income Supplement, social assistance, and workers’ compensation benefits.

  • Exempting employee ownership trusts (EOTs) entirely from AMT.

  • Allowing certain tax credits, like federal political contributions, investment tax credits (ITCs), and labour-sponsored funds tax credit, to be carried forward if disallowed under the AMT.

These changes would take effect for tax years beginning after December 31, 2023. Additionally, the budget proposes technical amendments that would exempt specific trusts benefiting Indigenous groups from the AMT.

Employee Ownership Trust (EOT) Tax Exemption

The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met:

  • Sale of shares must be from a non-professional corporation.

  • The seller, or their spouse or common-law partner, must have been actively involved in the business for at least two years prior to the sale.

  • The business shares must have been solely owned by the seller or a related person or partnership for two years before the sale, and mainly used in active business.

  • At least 90% of the EOT’s beneficiaries must be Canadian residents after the sale.

  • If multiple sellers are involved, they must jointly decide how to divide the $10 million exemption

  • If the EOT doesn’t maintain its status or if the business assets used in active business drop below 50% at any point within 36 months after the sale, the tax exemption may be revoked.

  • For Alternative Minimum Tax purposes, the exempted gains will face a 30% inclusion rate.

  • The normal reassessment period for the exemption is extended by three years.

  • The measure now also covers the sale of shares to a worker cooperative corporation.

This exemption is valid for sales occurring from January 1, 2024, to December 31, 2026.

Home Buyers Plan (HBP)

The budget proposes enhancements to the HBP for 2024 and beyond, effective for withdrawals after April 16, 2024. These include:

  • Raising the RRSP withdrawal limit from $35,000 to $60,000 to support first-time homebuyers and purchases for those with disabilities.

  • Extending the grace period before repayment starts from two to five years for withdrawals made between January 1, 2022, and December 31, 2025, deferring the start of the repayment period and thereby providing new homeowners additional time before they need to commence repayments

Interest Deductions and Purpose-Built Rental Housing

The budget proposes a selective exemption from the Excessive Interest and Financing Expenses Limitation (EIFEL) rules for certain interest and financing expenses related to arm’s length financing. This exemption is for the construction or purchase of eligible purpose-built rental housing in Canada and applies to expenses incurred before January 1, 2036. To qualify, the housing must be a residential complex with either at least four private apartment units, each with its own kitchen, bathroom, and living areas, or 10 private rooms or suites. Additionally, at least 90% of the units must be designated for long-term rental. This exemption will be effective for tax years starting on or after October 1, 2023, in line with the broader EIFEL regulations.

Accelerated Capital Cost Allowance (CCA) – Purpose built rental housing

The budget introduces an accelerated CCA of 10% for new rental projects that start construction between April 16, 2024, and December 31, 2030, and are completed by December 31, 2035. This accelerated depreciation applies to projects that convert commercial properties into residential complexes or expand existing residential buildings that meet specific criteria under the EIFEL rules. However, it does not cover renovations to existing residential complexes.

Additionally, these investments will benefit from the Accelerated Investment Incentive, which allows for immediate depreciation deductions for properties put into use before 2028. Starting in 2028, the regular depreciation rules, including the half-year rule, will apply.

Accelerated Capital Cost Allowance (CCA)- Productivity-enhancing assets

The budget introduces immediate expensing for newly acquired properties that become operational between April 16, 2024, and December 31, 2026. This applies to specific categories such as:

  • Class 44- Patents and rights to patented information

  • Class 46- Data network infrastructure and related software

  • Class 50- General electronic data-processing equipment and software

Properties that are put into use between 2027 and 2028 will continue to benefit from the Accelerated Investment Incentive.

To qualify for this accelerated depreciation, the property must not have been previously owned by the taxpayer or someone closely connected to them, and it must not have been received as part of a tax-deferred deal. Also, if a tax year is shorter, the depreciation will be adjusted accordingly and will not carry over to the next year.

Canada Carbon Rebate for Small Businesses

The budget introduces a Canada Carbon Rebate for small businesses, offering a new refundable tax credit automatically. To be eligible, a Canadian-controlled private corporation must:

  • File a tax return for its 2023 tax year by July 15, 2024, for the fuel charge years from 2019-20 to 2023-24. For subsequent fuel charge years, it must file a tax return for the tax year that ends within that fuel charge year.

  • Employ 499 or fewer people across Canada during the year that corresponds with the fuel charge year.

The amount of the tax credit for each eligible business will depend on:

  • The province where the company had employees during the fuel charge year.

  • The number of employees in that province multiplied by a rate set by the Minister of Finance for that year.

  • The CRA will automatically calculate and issue the tax credit to qualifying businesses.

We can help!

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Tax tips to know before filing your 2023 income tax

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This year’s tax deadline is April 30, 2024. It’s important to make sure you’re claiming all the credits and deductions you’re eligible for. We’ve separated this article into 2 sections: 

  • What’s new for 2023

  • Individuals and Families

What’s New for 2023

Advanced Canada Workers Benefit (ACWB)

Automatic advance payments of the Canada Workers Benefit (CWB) are now seamlessly distributed through the ACWB program to individuals who received the benefit in the last tax year. However, it’s important to note that not everyone who received the CWB in the previous tax year will automatically receive the ACWB payments. Only individuals who filed their 2022 tax return before November 1, 2023, are eligible for the ACWB payments.

Furthermore, it’s worth mentioning that the ACWB program eliminates the need to file Form RC201. Recipients are no longer required to fill out this form. Instead, starting in 2023, individuals should report the amounts from their RC210 slip on Schedule 6, Canada Workers Benefit, of their tax return. Additionally, for eligible spouses, the option to claim the basic amount for the CWB is available regardless of who received the RC210 slip.

Deduction for Tools (Tradespersons and Apprentice Mechanics)

Starting in 2023, the maximum employment deduction for eligible tools of tradespersons has risen from $500 to $1,000. Consequently, the threshold for expenses eligible for the apprentice mechanics tools deduction has also been adjusted. 

Temporary Flat Rate Method for Home Office Expenses

For the year 2023, the temporary flat rate method for claiming home office expenses is not applicable. Consequently, taxpayers seeking to claim such expenses for 2023 must utilize the detailed method and obtain a completed Form T2200, Declaration of Conditions of Employment, from their employer.

Federal, Provincial, and Territorial COVID-19 repayments

Repayments of COVID-19 benefits at the federal, provincial, and territorial levels, made after December 31, 2022, can be deducted and claimed.

First Home Savings Account (FHSA)

The FHSA is a registered plan designed to aid individuals in saving for their first home. Starting April 1, 2023, contributions made to an FHSA are typically deductible, and eligible withdrawals made from an FHSA for purchasing a qualifying home are tax-free. 

Property Flipping

Starting January 1, 2023, any profit generated from the sale of a housing unit (including rental properties) situated in Canada, or a right to acquire a housing unit in Canada, that you owned or held for less than 365 consecutive days prior to its sale is considered business income rather than a capital gain. This is applicable unless the property was already classified as inventory or the sale occurred due to, or in anticipation of specific life events. 

Multigenerational Home Renovation Tax Credit (MHRTC)

The MHRTC is a refundable tax credit designed to enable eligible individuals to seek reimbursement for specific renovation expenses incurred in establishing a secondary unit within an eligible dwelling. This enables a qualifying individual to live with their qualifying relative. If eligible, you can claim up to $50,000 in qualifying expenditures for each renovation project completed, with a maximum credit of $7,500 for each eligible claim. 

Fuel Charge Proceeds Return to Farmers Tax Credit

The Fuel Charge Proceeds Return to Farmers Tax Credit is now accessible to self-employed farmers and individuals involved in a partnership operating a farming business with one or more permanent establishments located in Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, or Saskatchewan. If eligible, you may be entitled to a refund of a portion of your fuel charge proceeds. 

For Individuals and Families

Canada Training Credit (CTC)

The CTC is a refundable tax credit available to help Canadians with the cost of eligible training fees.

To qualify for the CTC, you need to fill out Schedule 11 for the following:

  1. Tuition fees and other applicable fees paid to an eligible educational institution in Canada for courses taken in 2023.

  2. Fees paid to specific organizations for occupational, trade, or professional examinations undertaken in 2023.

To be eligible for the CTC, you must meet all these conditions:

  • You resided in Canada for the entire year of 2023.

  • You were at least 26 years old but less than 66 years old at the end of the year.

  • Your most recent notice of assessment or reassessment for 2022 shows a Canada Training Credit Limit for 2023.

Canada Caregiver Credit (CCC)

The CCC is a non-refundable tax credit aimed at assisting individuals who provide support to a spouse, common-law partner, or dependent with a physical or mental impairment, as outlined by the CRA.

You might be eligible for the CCC if you aid:

  • Your spouse or common-law partner dealing with a physical or mental impairment.

  • Dependents such as children, grandchildren, parents, grandparents, siblings, uncles, aunts, nieces, or nephews residing in Canada, who rely on you for consistent provision of basic needs like food, shelter, and clothing.

The amount you can claim varies depending on your relationship to the individual, your circumstances, their net income, and whether other credits are claimed for them.

Child Care Expenses

Child care expenses encompass payments made by you or someone else to arrange care for an eligible child. This care allows you to participate in income-earning activities, pursue education, or conduct research funded by a grant.

If you qualify, you can claim certain childcare expenses as deductions when you file your personal income tax return.

Disability Tax Credit (DTC)

The DTC is a non-refundable tax credit designed to support individuals with disabilities, or their family members who provide support, by reducing their income tax responsibilities.

To be eligible for this credit, individuals must have a significant and enduring impairment. Once approved, they can apply the credit when filing their taxes.

The DTC aims to ease some of the extra costs linked with the disability by lessening the individual’s income tax burden.

Moving

You can claim moving expenses you paid during the year if you meet these conditions

  • You moved to a new residence for work reasons, to start a business in a different area, or to attend a post-secondary program as a full-time student at a university, college, or other educational institution.

  • Your new residence must be at least 40 kilometres closer, determined by the shortest public route, to your new work location or educational institution.

Interest Paid on Student Loans

You might qualify to claim an amount for the interest paid on your student loan for post-secondary education if it was obtained under the following acts:

  • Canada Student Loans Act

  • Canada Student Financial Assistance Act

  • Apprentice Loans Act

  • Provincial or territorial government laws that are similar to the aforementioned acts.

Only you, or a person related to you, can claim the interest paid on the loan within the tax year 2023 or the preceding 5 years.

Donations and Gifts

When you or your spouse/common-law partner donate to eligible institutions, you might be eligible for federal and provincial/territorial non-refundable tax credits when you file your income tax and benefit return.

Normally, you can claim a portion or the full eligible donation amount, capped at 75% of your net income for the tax year.

Seeking guidance?

Wondering if you qualify for valuable tax credits or deductions? Reach out to us – as your financial advisor, we’re here to assist you in optimizing your finances and maximizing your savings.

Source: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/whats-new.html

Canada Training Credit: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-45350-canada-training-credit.html

Canada Caregiver Credit: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/canada-caregiver-amount.html

Child Care Expense: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-21400-child-care-expenses.html

Disability Tax Credit: https://www.canada.ca/en/revenue-agency/services/tax/individuals/segments/tax-credits-deductions-persons-disabilities/disability-tax-credit.html

Moving: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-21900-moving-expenses.html

Interest Paid on Student Loans: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-31900-interest-paid-on-your-student-loans.html

Donations and Gifts: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-34900-donations-gifts.html