April 2018 Update

Have you ever felt like everyone is working with the same set of information that you are – and therefore, sharing it would not be valuable? It’s a cognitive bias called “false-consensus,” which leads people to believe that their own values and ideas are “normal” and that others share them.

The result of this bias is that we didn’t write about the February 2018 Federal Budget. We were absolutely inundated with information about it, to the point that we thought that everything that could be said about it had been said – which it may have been. However, if you don’t work in finance, you may not have been informed, and part of our job is to inform you. All that to say: we are very sorry we didn’t update you and…better late than never?

What It Didn’t Have

The Budget didn’t include any changes to personal or corporate tax rates, or changes to the capital gains inclusion rate or stock option deductions. It also didn’t increase your TFSA contribution limit – so it’s $5,500 again.

Small Business Tax Reform

For a lot of us in the finance industry, the legislation around small business taxes was the key piece of news in this budget.

The saga began in July 2017, when the Minister of Finance released proposals to change the way income splitting, passive income, and conversion of income to capital gains were to be treated. Later updates in October and December did away with the discussion on income conversion and provided detailed legislation regarding Tax on Split Income (TOSI). BDO has a good summary of the TOSI rules here.

What we were waiting for is how passive income would be treated – the proposals in July and October gave many tax professionals and business owners some deep concern. The resulting legislation in the budget seemed like a relief in comparison.

The final result was that passive income will reduce the Small Business Limit that your company enjoys on active income. For every $1 over $50,000 of passive income, the Small Business Limit of $500,000 on active income will be reduced by $5. This means that at $150,000 of passive income, the business limit is reduced to zero. 

Trust Reporting

If you have a trust, you’ll be providing more information this year, including the identities of all trustees, beneficiaries, settlors, and each person who has the ability to exert control over trustee decisions. Excluded from these rules are mutual funds, segregated funds, mater trusts, trusts governed by registered plans, lawyers’ general trust accounts, graduated rate estates, qualified disability trusts, non-profit organizations, registered charities, and trusts that have been around less than three months or have less than $50,000 in assets.

The other updates in this budget included:

The Canada Child Benefit Indexing (inflation-linked increases) starting in July 2018.

Parental Leave – An incentive for new fathers to take parental leave through The Employment Insurance Parental Sharing Benefit.

Canada Pension Plan Enhancement – This will be phased in gradually, starting in 2019, and will increase the maximum CPP benefit over time.

For a full review from actual accountants, you can download CPA Canada’s Federal Budget Brief here.

For those of you who already knew this and/or were bored with this month’s update, please do check out the vastly more interesting review of Worry-Free Money, Sandi’s Top Reads, and why cash flow planning is more important than you may have known.