My account

The year 2017 is already drawing to a close and the time has come for a quick assessment of the steps to take before the new year begins.

Our tax specialists have closely followed key developments – including the federal government’s proposed changes to tax measures concerning private corporations ­– and they have analyzed their potential impact on your wealth. Here is a report on their findings, as well as points to consider and recommendations to optimize both your personal situation and the taxation of your corporation.

Use the tabs below to access the strategies that concern you.

Your individual tax strategies

Your registered savings plans

A few important dates:

Your Registered Education Savings Plan (RESP) 

  • December 31, 2017: deadline to benefit from the government grants available in 2017

Your Registered Retirement Savings Plan (RRSP) 

  • March 1, 2018: deadline for contributions deductible in 2017

If you turned 71 in 2017 and you earned professional or rental income, you can make a final contribution to your RRSP in December, based on your 2017 income. This excess contribution will be subject to a penalty of 1% per month, so it’s important to only make it in December, to minimize the impact of the penalty.

However, if your spouse is younger than you, you can still contribute to his or her RRSP if you earned income during the year, even if you are over the age of 71.

Your investment portfolio

By selling the losing stocks in your non-registered investment accounts and your corporate investment account, you can use the losses to reduce your tax payable on capital gains realized this year (or in the past three years, or on future capital gains). If you still want to keep these stocks in your portfolio, you can always buy them back 30 days after their disposition.

You may be considering buying mutual funds at year-end. Be cautious. Some funds pay year-end distributions which are taxable for the current year and which can result in substantial taxes for a short holding period. Inform yourself about these potential investments and wait until the beginning of 2018 to buy securities that have a high tax cost.

The new compensation-based accounting method

For taxation years beginning after March 21, 2017, you must start to include in your business income the value of your work in progress, even if you have not yet been paid for this work.

The inclusion of work in progress in business income will be done gradually over a five-year period.

  • The first year, only 20% of the value of work in progress will have to be included in your income.
  • Over the following four years, this percentage will increase by 20% each year (40%, 60%, 80%, 100%) so that ultimately, the total value of work in progress will have to be included.

So be sure to report this income at the end of your fiscal year.

 

General conclusion

These few tips will enable you to start the year 2018 with confidence and to take the right steps at the right time. To learn more and to obtain a more personalized assessment of your situation, contact an advisor from the Financial: backed by our team of tax specialists, notaries and financial planners, your advisor can go over the issues that concern you and help you manage your wealth for you and your family’s well-being.

Benoit Chaurette, M. Fisc., Pl. Fin.
Tax Specialist and Financial Planner

Your corporate tax strategies

Your loans or advances

If you are incorporated, your corporation may have granted you a loan or an advance in 2017

  • Don’t forget that you have to pay back this amount within one year following the end of the fiscal year in which the loan or the advance was made, otherwise it will be added to your taxable income.
Your incorporation : TO DO!
 Pay a dividend to a member of your family
  • Beginning January 1, 2018, the federal government proposes to limit the tax benefit of paying a dividend to a family member by taxing it at the maximum rate.
  • There will be an exception when the dividend payment is deemed “reasonable,” considering the recipient’s contribution to the business.

If a member of your family will be affected by this measure in 2018, we advise you to pay them a dividend before year-end 2017.

  • The amount of this dividend could be higher than what you usually pay in order to take advantage of the current tax rules for the last time.
  • This dividend could be declared, without being paid immediately. Your corporation will owe this amount to the member of your family and a note will be drawn up evidencing this debt. This can be an attractive alternative if you want to avoid paying large amounts to family members who could have difficulty managing them.
 Pay yourself a dividend before year-end

In its economic update of October 24, 2017, the government announced that it will lower the tax rate on business income eligible for the small business deduction (SBD), generally the first $500,000 earned.

  • The total tax rate – federal and Quebec – will fall from 18.50% in 2017 to 18.00% in 2018, and to 17.00% in 2019.
  • To maintain the income integration principle1 , the tax rate on non-eligible dividends will therefore increase in 2018 and in 2019.

If you had planned to pay yourself a dividend soon, it could be advantageous to make this payment before year-end 2017.


Find out more about the proposed changes to tax measures affecting private corporations. READ HERE

Your incorporation : DO NOT!
 Wind up your corporation

The proposed changes are sowing doubt, and some professionals are even questioning whether their corporation serves any purpose. Before concluding too quickly that your corporation should be wound up, consider the following:

  • Although income splitting seems largely compromised as of January 1, 2018, tax deferral is still possible.
  • The government announced that it does not intend to change the tax benefits related to investments currently held by your corporation.
  • It also said that it intends to limit tax deferral on investment income earned by a corporation in excess of $50,000. However, no legislative proposal has been drafted in this regard. The new measure will likely be disclosed when the 2018 budget is tabled.

In light of the current uncertainty regarding the exact repercussions of many of the proposed measures, we recommend that you maintain the status quo. We advise you not to wind up your corporation for now.

 Incorporating now

If you are considering incorporating your practice or your business, caution is in order.

  • Many proposals have been announced, but the texts of law have yet to be drafted and they could have some surprises in store for us.
  • Some specific situations may justify incorporation, such as the purchase of a business.

Before initiating your incorporation process, speak with your advisor to discuss your situation and to assess the suitability of this project. Generally, we suggest that you wait for the tabling of the legislation before going ahead.

 Adopting aggressive strategies

In view of the proposed changes, you may be tempted to opt for “aggressive” strategies to circumvent the spirit of the Income Tax Act.

  • Be extremely careful with the tax strategies that are put in place.

Before implementing strategies that you could regret later, discuss your situation with your advisor and be sure to ask for his or her opinion on these strategies. You and your family’s peace of mind could be at stake.


Find out more about the proposed changes to tax measures affecting private corporations. READ HERE

General conclusion

These few tips will enable you to start the year 2018 with confidence and to take the right steps at the right time. To learn more and to obtain a more personalized assessment of your situation, contact an advisor from the Financial: backed by our team of tax specialists, notaries and financial planners, your advisor can go over the issues that concern you and help you manage your wealth for you and your family’s well-being.

Benoit Chaurette, M. Fisc., Pl. Fin.
Tax Specialist and Financial Planner

For an analysis of your situation,
get in touch with one of our advisors