BC: Reduces commercial property tax for businesses by average of 25%, help local governments

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The province of British Columbia is providing additional support to businesses by reducing most commercial property tax bills by an average of 25%. In addition, the provincial government introduced new measures to support local governments facing revenue shortfalls.

“We know that B.C. communities and businesses are suffering from the economic impacts of COVID-19,” said Carole James, Minister of Finance. “That is why our B.C. COVID-19 Action Plan is focused on the health and safety of British Columbians, direct support for people and businesses and economic recovery for our province. We are providing further support by making additional temporary property tax changes to provide provincewide relief for business and local governments to help weather the pandemic, continue to deliver the services people count on and be part of our province’s economic recovery.”

– Minister of Finance, Carol James

From the BC government website:

“The Province is taking significant new steps to support B.C. businesses, non-profits and other organizations through the COVID-19 pandemic by:

  • further reducing the school property tax rate for commercial properties to achieve an average 25% reduction in the total property tax bill for most businesses, providing up to $700 million in relief. This enhances the 50% reduction to the provincial school property tax rate that was originally announced for classes 4, 5, and 6 as part of B.C.’s COVID-19 Action Plan.

  • Postponing the date that late payment penalties apply for commercial properties in classes 4,5,6,7 and 8 to Oct. 1, 2020, to give businesses and landlords more time to pay their reduced property tax, without penalty.

Responding to key concerns from local governments, the Province is addressing cash flow and revenue shortfalls with new measures that provide additional support:

  • authorizing local governments to borrow, interest-free, from their existing capital reserves to help pay for operating expenses, such as employee salaries.

  • delaying provincial school tax remittances until the end of the year. This will provide significant relief to local governments facing cash flow issues.

  • providing local governments greater flexibility to carry debt for an additional year.

  • These measures will provide local governments with the resources to meet their operational costs and required remittances to regional districts, regional hospital districts, TransLink and transit authorities, BC Assessment, the Municipal Finance Authority and other taxing authorities. This will ensure that other minor taxing authorities can count on receiving the full amount they bill to municipalities and the Province’s surveyor of taxes before Aug. 1, 2020.”

Click to see the Full News release

New Canada Emergency Commercial Rent Assistance | Canada Emergency Business Account Expanded

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Canada Emergency Commercial Rent Assistance

On April 16th, Prime Minister Justin Trudeau announced support for to help small businesses with their rent for the months of April, May and June.

The program is being worked out with the provinces and more details will be available shortly.

“Businesses and Commercial property owners are also facing specific challenges because of COVID-19 so we plan on introducing the Canada Emergency Commercial Rent Assistance. This program will provide support to help small businesses with their rent for the months of April, May and June. To implement this program we have to work with the provinces and territories as they govern rental relationships and we hope to have more details very soon” – PM Justin Trudeau

Canada Emergency Business Account

The eligible amounts are being expanded to include businesses with 2019 total payroll between $20,000 – $1.5 million.

There are restrictions on the funds can be used. From their website https://ceba-cuec.ca/:

“The funds from this loan shall only be used by the Borrower to pay non-deferrable operating expenses of the Borrower including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service, and may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.”

Click to Get Full Details

Expanded eligibility for Canada Emergency Response Benefit (CERB) & Boosted wages for Essential Workers

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From his speech this morning (April 15th), Prime Minister Justin Trudeau announced:

“Today, we’re announcing more help for more Canadians. This includes topping up the pay of essential workers. At the same time, we’ll also be expanding the Canada Emergency Response Benefit to reach people who are earning some income as well as seasonal workers who are facing no jobs and for those who have run out of EI recently. Expanding the CERB to include people who earn up to $1,000 per month. Maybe you’re a volunteer firefighter, or a contractor who can pickup some shifts, or you have a part-time job in a grocery store.”

Eligibility for CERB

On eligibility for CERB, the Prime Minister stated:

“If you earn $1,000 or less a month, you’ll now be able to apply for CERB.

If you were expecting a seasonal job that isn’t coming because of COVID-19, you’ll now be able to apply.

If you’ve run out of EI since January 1st, you can now apply for CERB as well

And for others who still need help, including post secondary students and businesses worried about commercial rent, we’ll have more to say to you very soon.”

Wage Boost for Essential Workers

On topping up wages for Essential Workers, PM Justin Trudeau said:

“Our government will work with the provinces and territories to boost wages for essential workers who are making under $2,500 a month, like those in our long-term care facilities”

The government website is being updated with the new qualifications, for full details and to apply click below:

Apply for CERB

Applications for the Canada Emergency Business Account starts TODAY!

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The new Canada Emergency Business Account (CEBA) is available starting TODAY and is available through major banking institutions: TD, Scotiabank, BMO, CIBC, RBC, National Bank, HSBC and Canadian Western Bank.

The CEBA will provide interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced until December 31, 2022. Up to $10,000 of that amount will be eligible for loan forgiveness if $30,000 is fully repaid on or before December 31, 2022.

Eligibility

Organizations will need to demonstrate they paid between $50,000 to $1 million in total payroll in 2019

How do I apply?

Prior to applying, please make sure you have this information readily available:

  • Canada Revenue Agency Business Number (BN 15 digits)

  • 2019 T4 Summary of Remuneration Paid (T4SUM)

Apply online at the financial institution your business banks with:

Rules changed to allow more struggling business owners access to CERB, Wage Subsidy. Summer jobs program increased to 100%

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Help for Small/Medium Businesses & Entrepreneurs – 75% wage subsidy, $40,000 interest-free loan & more

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March 27, 2019 – Prime Minister Justin Trudeau announced programs and measures focused on helping Small & Medium Sized Businesses and Entrepreneurs cope with the economic consequences caused by the COVID-19 pandemic.

“With these new measures, our hope is that employers being pushed to laying off people due to COVID-19 will think again,” Trudeau said. “And for those of you who have already had to lay off workers, we hope you will re-hire them.”

Wage Subsidy increased to 75%

The Prime Minister has been under pressure from the small business community to boost the wage subsidy beyond the 10% initially announced to help keep people employed. Today, Mr. Trudeau announced the government will increase the wage subsidy from 10% to 75% to help keep employees on the payroll. This increase will be backdated to Sunday, March 15th.

“It is clear we have to do more, much more so we are bringing that percentage up to 75 per cent for qualifying businesses”

– Prime Minister Justin Trudeau

Canada Emergency Business Account (CEBA)

The CEBA will allow banks to offer $40,000 loans that will be interest-free for the 1st year which will be guaranteed by the government. If you meet certain conditions, $10,000 of the loan can be forgivable.

“To help you bridge to better times, we are launching the Canada Emergency Business Account. With this new measure banks will soon offer $40,000 which will be guaranteed by the government”

Defer GST, HST, Duty

The government will defer GST & HST payments, as well as duty and taxes owed on imports until June 2020.

“This is the equivalent of giving $30-billion of interest free loans to businesses”

Bank of Canada Rate Cut

Bank of Canada slashed its key overnight interest rate to 0.25%.

Full details and qualification requirements will be available on Monday.

Salary vs Dividend

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As a business owner, you have the ability to pay yourself a salary or dividend or a combination of both. In this article and infographic, we will examine the difference between salary and dividends and review the advantages and disadvantages of each.

When deciding to pay yourself as a business owner, please review these factors:

  • How much do you need?

  • How much tax?

  • Other considerations including retirement and employment insurance.

How much do you need?

Determine your cash flow on a personal and corporate level.

  • What’s your personal after-tax cash flow need?

  • What’s your corporate cash flow need?

How much tax?

Figure out how much you will pay in tax. Business owners understand that tax is a sizeable expense.

  • What’s your personal income tax rate?

Depending on the province you reside in and your income, make sure you also include income from other sources to determine your tax rate. (Example: old age security, pension, rental, investment income etc.)

If you decide to pay out in dividends, check if you will be paying out eligible or ineligible dividends. The taxation of eligible dividends is more favorable than ineligible dividends from an individual income tax standpoint.

  • What’s your corporation’s income tax rate?

For taxation year 2020, the small business federal tax rate is 9% . Please also remember, if you pay out salary, salary is considered a tax-deductible expense, therefore this will lower the corporation’s taxable income versus paying out dividends will not lower the corporation’s taxable income.

Other considerations

If you pay yourself a salary, these options are available.

  • Do you need RRSP contribution room?

As part of this, it’s worth considering ensuring that you receive a salary high enough to take full advantage of the maximum RRSP annual contribution that you can make.

  • Are you interested in contributing to the Canada Pension Plan?

This is unique to your circumstances and a cost-benefit analysis to determine the amount of contributions makes sense.

  • Do you need employment insurance (EI)?

For shareholders owning more than 40% of voting shares, EI is optional . There are situations worth careful thought such as maternity benefit, parental benefit, sickness benefit, compassionate care benefit, family caregiver benefit for children or family caregiver benefit for adults.

The infographic below summarizes the difference between Salary vs. Dividend.

We would also advise that you get in touch with your accountant to help you determine the best mix for your unique situation.

Contact Us

Business Owners: 2019 Tax Planning Tips for the End of the Year

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Now that we are nearing year end, it’s a great time to review your business finances. With the federal election over and no major business tax changes for this year, 2019 is a good year to make sure you are effectively tax planning. Please keep in mind that your business may be affected by the recent tax on split income (TOSI) and the passive investment income rules given they came into effect in 2018. These rules can be complicated, please don’t hesitate to consult us and your accountant to determine how this can affect your business finances.

We are also assuming that your corporate year end is December 31, however if it’s not, this is useful when your business year end comes up.

Below, we have listed some of the key areas to consider and provided you with some useful guidelines to make sure that you cover all of the essentials. We have divided our tax planning tips into 4 sections:

  1. Tax checklist

  2. Remuneration

  3. Business tax

  4. Estate

1) Business Year-End Tax Checklist

Remuneration

 ☐ Salary/Dividend mix

 ☐ Accruing your salary/bonus

 ☐ Stock option plan

 ☐ Tax-free amounts

 ☐ Paying family members

Business Tax

 ☐ Claiming the small business deduction

 ☐ Shareholder loans

 ☐ Passive investment income: eligible/ineligible dividends

 ☐ Corporate reorganization

Estate

 ☐ Will review

 ☐ Succession plan

 ☐ Lifetime capital gains exemption

 

2) Remuneration

What’s your salary/dividend mix?

Individuals who own incorporated businesses can elect to receive their income as either salary or as dividends. Your choice will depend on your own situation consider the following factors:

  • Your current and future cash flow needs

  • Your personal income level

  • The corporation’s income level

  • TOSI rules

  • Passive investment income rules

Please also consider the difference between salary and dividends:

Salary

✓ Provides RRSP contribution

✓ Reduces corporate tax bill

• Payroll tax

• Canada Pension Plan (CPP) contribution

• Employment Insurance contribution

Dividend

• Doesn’t provide RRSP contribution

• Doesn’t reduce corporate tax bill

• No tax withholdings

• No Canada Pension Plan contribution

• No Employment Insurance contribution

✓ Receive up to $50,000 of ineligible dividends at a low tax rate depending on province

As part of this, it’s worth considering ensuring that you receive a salary high enough to take full advantage of the maximum RRSP annual contribution that you can make. For 2019, salaries of $151,278 will provide the maximum RRSP room of $27,230 for 2020.

Is it worth accruing your salary or bonus this year?

You could consider accruing your salary and / or bonus in the current year but delaying payment of it until the following year. If your company’s year-end is December 31, your corporation will benefit from a deduction for the year 2019 and the source deductions are not required to be remitted until actual salary or bonus payment in 2020.

Stock Option Plan

If your compensation includes stock options, please check if you will be affected by the new proposed stock option rules. This caps the amount of certain employee stock options eligible for the stock option deduction at $200,000 after December 31, 2019. The rules will not affect you if your stock options are granted by a Canadian controlled private corporation.

Tax Free Amounts

If you own your corporation, pay tax-free amounts if you can. Here are some ways to do so:

  • Pay yourself rent if the company occupies space in your home.

  • Pay yourself capital dividends if your company has a balance in its capital dividend account.

  • Return “paid-up capital” that you have invested in your company

Do you employ members of your family?

Employing and paying salary to family members who undertake work for your incorporated business is worth considering as you could receive a tax deduction against the salary that you pay them, providing that said salary is “reasonable” in relation to the work done. In 2019, the individual can earn up to $12,069 and pay no federal tax. This also provides the individual with RRSP contribution room, CPP and allow for child-care deductions. Bear in mind additional costs that are incurred when employing someone, such as payroll taxes and contributions to CPP.

3) Business Tax

Claiming the Small Business Deduction

Are you able to claim a small business deduction? The federal small business tax rate decreased from 9% in 2019 (from 10% in 2018) and not anticipated to increase in 2020. From a provincial level, there will be changes in the following provinces:

Small Business Tax Rate

Therefore, a small business deduction in 2019 is worth more than in 2020 for these provinces.

Should you repay any shareholder loans?

Loaning funds from your corporation at a low or zero interest rate means that you are considered to have benefited from a taxable benefit at the CRA’s 2% interest rate, less actual interest that you pay during the year or thirty days after it. You need to include the loan in your income tax return, unless it is repaid within one year after the end of your corporation’s taxation year.

For example, if your company has a December 31st year-end and it loaned you funds on November 1, 2019, you must repay the loan by December 31, 2020, otherwise you will need to include the loan as taxable income in your 2019 personal tax return.

Passive investment income

If your corporation has a December year- end, then 2019 will be the first taxation year that the new passive investment income rules may apply to your company.

New measures were introduced in the 2018 federal budget relating to private businesses which also earn passive investment income in a corporation that also operates an active business.

There are two key parts to this, as follows:

  • Limiting access to dividend refunds. Essentially, a private company will be required to pay ineligible dividends in order to receive dividend refunds on some taxes which, in the past, could have been refunded when an eligible dividend was paid.

  • Limiting the small business deduction. This means that, for the companies mentioned above, the small business deduction can be reduced at a rate of $5 for every $1 over between $50,000 and $150,000 of investment income, or eliminated if investment income exceeds $150,000. Please note that Ontario and New Brunswick have indicated that they will not follow the federal rules.

If your corporation earns both active business and passive investment income, you should contact us and your accountant directly to determine if there are any planning opportunities to minimize the impact of the new passive investment income rules.

Think about when to pay dividends and dividend type

When choosing to pay dividends in 2019 or 2020, you should consider the following:

  • Difference between the yearly tax rate

  • Impact of tax on split income

  • Impact of passive investment income rules

With the exception of 2 provinces, Quebec and Ontario, the combined top marginal tax rates will not be changing from 2019 to 2020 on a provincial level. Therefore, it will not make a difference if you choose to pay in 2019 or 2020.

Combined Marginal Tax Rate

In Quebec and Ontario, because there are slight increases in the combined marginal tax rate, there are potential tax savings available if you choose to pay dividends in 2019 rather than in 2020.

When deciding to pay a dividend, you will need to decide to pay out eligible or ineligible dividends, you should consider the following:

  • Dividend refund claim limits: Eligible refundable dividend tax on hand (ERDTOH) vs Ineligible Refundable dividend tax on hand (NRDTOH)

  • Personal marginal tax rate of eligible vs. ineligible dividends

Given the passive investment income rules, typically, it makes sense to pay eligible dividends to deplete the ERDTOH balance before paying ineligible dividends. (Please note that ineligible dividends can also trigger a refund from the ERDTOH account.)

Eligible dividends are taxed at a lower personal tax rate than ineligible dividends (based on top combined marginal tax rate). However, keep in mind, when ineligible dividends are paid out, they are subject to the small business deduction, therefore the dividend gross-up is 15% while eligible dividends that are subject to the general corporate tax rate have a dividend gross-up is 38%. It’s important to talk to a professional to determine what makes the most sense when determining the type of dividend to pay out of your corporation.

Combined Personal Top Marginal Tax Rate on Dividends

Corporate Federal Tax Rate and Gross-up factor

Corporate Reorganization

It might be time to revisit your corporate structure given the changes to private corporation rules on income splitting and passive investment income to provide more control on the distribution of dividend income. Another reason to reassess your structure is to segregate investment assets from your operating company for asset protection. (Keep in mind you don’t want to trigger TOSI, so make sure you structure this properly.) If you are considering succession planning, this is the time to evaluate your corporate structure as well.

4) Estate

Ensure your will is up to date

In particular, if your estate plan includes an intention for your family members to inherit your business, ensure that this plan is tax effective following new tax legislation from January 1, 2016. In addition, review your will to make sure that any private company shares that you intend to leave won’t be affected by the new TOSI rules.

Succession plan

Consider a succession plan to ensure your business is transferred to your children, key employees or outside party in a tax efficient manner.

Lifetime Capital Gains Exemption

If you sell your qualified small business corporation shares, you can qualify for the lifetime capital gains exemption (In 2019, the exemption is $866, 912) where the gain is completely exempt from tax. The exemption is a lifetime cumulative exemption; therefore, you don’t have to claim the entire amount at once.

The issues we discussed above can be complex. Contact us and your accountant if you have any questions, we can help.

Estate Planning for Business Owners

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Estate Planning for Business Owners

What happens when the children grow up and they are no longer dependent on their parents? What happens to your other “baby”- the business? Estate planning for business owners deals with the personal and business assets. Business succession planning is different because it deals with your business assets only and can also take place while you’re alive. You need to have an estate plan regardless if you have a succession plan or not. Estate planning for business owners is typically more complicated because the estate plan needs to deal with:

  • Complex business and personal relationships

  • Bigger and more intricate estates

  • Tax issues

  • Business Succession

When putting an estate plan for a business owner together, one of the most difficult conversations is around fair or equal distribution of assets. What if one of the children are working in the business how do you treat them? Before you begin putting a plan in place, we always encourage open conversation and a family meeting between the parents and children to provide context behind decisions and therefore it minimizes the surprises and provides an opportunity for children to express their concerns.

We’ve put together an infographic checklist that can help you get started on this. We know this can be a difficult conversation so we’re here to help and provide guidance.

Adult Children

  • Fair vs Equal (also known as Equitable vs Equal) – like what’s considered to be fair may not necessarily be equal. ex. Should the daughter that’s been working in the family business for 10 years receive the same shares as the son who hasn’t worked in the family business at all?

  • Are the adult children responsible enough to handle the inheritance? Or would they spend it all?

  • Who works in the family business? Is it all the kids or just one of them?

Family Meeting

  • Encourage open conversation with parents and kids so context can be provided behind the decisions, there are no surprises and allows the kids to express their interests and concerns.

  • Facilitate a family meeting with both generations, this will help promote ongoing family unity after death and decrease the chances of resentment later.

  • Start looking at considerations for a succession plan for the business. (This needs to be documented separately.)

Assets/Liabilities

  • What are your assets? Create a detailed list of your assets such as:

  • Home, Real Estate, Investments- Non registered, TFSA, RRSP, RDSP, RESP, Company Pension Plan, Insurance Policy, Property, Additional revenue sources, etc..

  • What about shares in your business? How does this need to be addressed?

  • What are your liabilities? Create a detailed list of your liabilities such as:

  • Mortgage, Loans (personal, student, car), Line of Credit, Credit card, Other loans (payday, store credit card, utility etc.)

  • Did you personally guarantee any business loans and how does this need to be addressed?

  • Understand your assets-the ownership type (joint, tenants in common, sole etc.), list who are the beneficiaries are for your assets

  • Understand your liabilities- are there any co-signors?

Make sure you have a will that:

  • Assigns an executor.

  • Provide specific instructions for distribution of all assets.

  • Consider a power of attorney for use when you’re incapacitated or otherwise unable to handle your affairs.

  • Always choose 2 qualified people for each position and communicate with them.

Taxes and Probate

  • How much are probate and taxes? (Income tax earned from Jan 1 to date of death + Taxes on Non Registered Assets + Taxes on Registered Assets, Taxes on Business Shares)

  • Are there any outstanding debts to be paid?

  • You’ve worked your whole life- how much of your hard earned money do you want to give to CRA?

  • How much money do you want to to give to your kids while you’re living?

Consider the following:

  • The use of trusts.

  • The use of an estate freeze if you wish to gift while you’re living.

  • The use of a holdco for effective tax planning.

  • Once you determine the amount of taxes, probate, debt, final expenses and gifts required, review your life insurance coverage to see if it meets your needs or if there’s a shortfall.

Execution:It’s good to go through this but you need to do this. Besides doing it yourself, here’s a list of the individuals that can help:

  • Financial Planner/Advisor (CFP)

  • Estate Planning Specialist

  • Insurance Specialist

  • Lawyer

  • Accountant/Tax Specialist

  • Chartered Life Underwriter (CLU)

  • Chartered Executor Advisor (CEA)

Next steps…

  •  Contact us about helping you get your estate planning in order so you can gain peace of mind that your family is taken care of.