Wealth Impacting Changes In Canada (Pay Less TAX)

What I can see is spending was lower compared to previous years. With the deficit for the fiscal year ending in 2022 projected to hit 1 13.8 billion, which is down from 327.7 billion in the previous year. So on June 29, 2021, there was a bill called Bill C208 that received royal assent and the bill amended the Income Tax act to allow a business owner to sell or transfer their shares in a qualified small business corporation to a corporation that is owned by their adult child or grandchild without adverse tax consequences that were previously applied.

On April 7, 2022, the Deputy Prime Minister and Minister of Finance Christa Freeland tabled Canada's federal budget with the new Liberal NDP coalition and their general platforms on having big government involvement, high central bank money printing and high government spending. It's definitely normal to wonder whether or not their budget can have a huge impact on your ability to build wealth in Canada. Hey, I'm Henry Wong, CPACA and authorized Infinite Banking Practitioner in Canada. And what I'm going to talk about and share with you today is talking about this year's Federal budget. And this federal budget is titled A Plan to Grow Our Economy and Make Life More Affordable. Now what's important to understand is they didn't actually introduce any measures that directly impacted life insurance, living benefits or wealth products. While this video is focused on the 2022 federal budget release, I still want you to think about the importance of building your own banking function in Canada. The updates that you're going to hear from me just reinforces the importance of keeping the wealth within your own family rather than the open environment to which the government has influence over. To learn more about this process please please visit watchibc.com for a free 90 minute training on the process of becoming your own banker. So with the gradual release of lockdowns across provinces, the high inflationary environment that we're in, a hot housing market, and coupled with the war in Ukraine as its backdrop. The Liberal NDP government's 2022 budget focuses on affordability, housing, defense and reconciliation with indigenous communities. Overall, what I can see is spending was lower compared to previous years, with the deficit for the fiscal year ending in 2022 projected to hit 1 13.8 billion, which is down from 327.7 billion in the previous year. Now, there have been various proposed tax measures that impact both individuals and businesses and the ones that I'm going to share with you are going to be the ones that can possibly impact your ability for wealth building. Now the following tax measures introduced in the budget may be of interest to you. What's important to understand is this material is for information purposes only and it should not be construed as providing legal or tax advice. Reasonable efforts have been made to ensure its accuracy, but errors and emissions are possible. All comments related to taxation are general in nature and are based on current Canadian tax legislation and interpretations for Canadian residents which is subject to change for individual circumstances. Please make sure you consult with your legal or tax professional so the first one I want to talk about is the small business deduction and this applies to a Canadian controlled private corporation which is known as CCPC and it currently benefits from a reduced corporate tax rate on its first 500,000 of active business income. This is commonly referred to as the small business tax rate and it produces a combined federal provincial tax rate of approximately 12% in most provinces. Active business income above this business limit is generally taxed at a higher combined rate of approximately 26% in most provinces. And under the current tax legislation, the $500,000 business limit is reduced on a straight line basis. And let me show you what that rule looks like. So what you can see from what I'm sharing is under current tax legislation the 500,000 business limit is reduced on a straight line basis when the combined taxable capital employed in Canada of the CCPC and its associated corporations is between 10 million and 15 million. The combined adjusted aggregate investment income of the CCPC and its associated corporations is between 50,000 and 150,000. So in particular the business limit is calculated as the lesser of the two amounts determined by these business limit reductions. Now the budget proposes to access the small business rate tax rate more gradually upon one of the above formulas. Namely, it proposes that the small business limit be fully phased out when taxable capital reaches 50 million rather than the 15 million. So that is the main change that has happened in the new budget proposal. So the new range on the taxable capital has changed from the 10 million 15 million to the new 10 million 50 million. First, this measure begins on or after April 7, 2022. And note that this proposal only applies to the federal portion of the small business tax rate. Now there is expectation that the provinces will follow this same measure and this change, just to give you some interpretation, would allow more medium sized CCPCs to benefit from the small business deduction. So for example, under the new rules, A CCPC with 30 million in taxable capital would have up to 250,000 of active business income eligible for the small business deduction compared to $0 under the current rules. The next relevant change for business owners is actually what's called the non CCPC planning. So let me show you what that means. So the first part I wanted to share is the Department of Finance is concerned that taxpayers are setting up investment holding companies in a way that avoids the refundable tax mechanism that typically applies to investment income earned by a corporation. And just to give you a little bit of a background, investment income earned by a CCPC is subject to a high tax rate compared to active business income. So the Tax act is done this way so that individuals aren't incentivized to hold their investments through a corporation. Most of the taxes paid by a CCPC on its investment income are refundable to the corporation when it pays what's called a taxable dividend. And if we use Ontario's tax rates, for example, in the case of interest income, the tax rate is 50.17% and the refundable portion would be 30.

Without getting into the intricacies of corporate taxation, the refundable portion of these taxes generally, it creates an anti deferral mechanism so that there are no significant tax advantages of earning investment income through a ccpc. Now, tax professionals have developed planning where their clients use investment holding companies that don't qualify as CCPCs to avoid the refundable tax mechanism. So for example, one of the planning methods used to avoid CCPC status is to continue a Canadian incorporated company under a foreign jurisdiction while maintaining the company's Canadian residency by keeping its central management and control in Canada. Now the advantage of doing so results in investment income subject to the lower tax rates. So using the interior example, the interest earned in a non CCPC would be subject to a tax rate of 26.5%. Now this type of planning is known as non CCPC planning. So this new budget proposes to amend the Income Tax act to align the taxation of investment income earned in a what's called substantive CCPC with the rules that currently apply to CCPC. So what substantive CCPCs means is that private corporation residents in Canada that are ultimately controlled in law or in fact by Canadian resident individuals, this measure is ultimately designed so that substantive CCPCs are taxed in the same manner as CCPCs. It appears non CCPCs would still be able to benefit from the capital dividend account mechanism. So that is some great news. Now this measure would apply to taxation years that end on or after April 7, 2022. The next topic I want to talk about in terms of a relevant change to the federal budget is what's called intergenerational transfers. So on June 29, 2021 there was a bill called Bill C208 that received royal assent. And the bill amended the Income Tax act to allow a business owner to sell or transfer their shares to in a qualified small business corporation, family farm and fishing corporation, to a corporation that is owned by their adult child or grandchild without adverse tax consequences that were previously applied. So in particular, the amendments contained in Bill C208 enable the sale proceeds to be taxed at capital gains rates instead of at the higher dividend rates. And there's still a forward draft with legislative amendments for that consultation. So the next topic I want to talk about that may surprise you is that in the budget there's an announcement that the government has a commitment to examine a new minimum tax regime which will go further towards ensuring that all wealthy Canadians pay their fair share of tax. The government will release details on a proposed approach in the 2022 fall economic and fiscal update. The next topic which has been a very hot topic, which is housing. So the federal 2022 budget has a huge focus on housing in general, but more specifically it's in five different areas. So let me talk about those areas. So the first one you're going to see is called saving. There's going to be financial help to individuals with a new tax free first home savings account known as FHSA. This is going to give first time home buyers the ability to save up to $40,000. Contributions would be tax deductible and withdrawals to purchase. So this is very important to purchase a first home would be tax free. Investment growth inside the FHSA would be tax free as well. There's no information in terms of what happens when it comes to these plans. What I want to highlight is there hasn't been any information disclosed on what happens if you don't purchase that home. So this is one very important caveat for you to keep an eye on. The effective date is expected to be 2023. The second area is known as what's called the anti flipping tax. This budget introduces new tax rules so that any person who sells a property they have held for less than 12 months would be subject to full taxation on their profits as business income. The principal residence exemption would also be unavailable under the new rules. Exemptions would apply for Canadians who sell their home due to certain life circumstances. This measure would apply to residential properties sold on or after January 1, 2023. The third is actually what's called restrictions on foreign buyers. This third area is going to prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non recreational residential property in Canada for a period of two years. The fourth area I want to cover is called tax credits and this is going to enhance existing tax credits to support first time homebuyers and a new tax credit to support home renovations for multigenerational homes. The fifth area is called building. There are measures in the budget aimed at doubling housing construction over the next decade and make more affordable housing available. Now there's no mention exactly how the plan is going to play out, but this is still something for you to keep on your radar to understand how are they actually planning to double the housing construction? What is normally anticipated is there's been a lot of murmurs and discussions and some of the things that I wanted to raise for at least while you're watching this video are there were tax measures that were not addressed in the budget while widely speculated to be included in the budget and these were some of the things that I wanted to raise to your attention. So the first speculation is an increase in the capital gains inclusion rate from the 50%. Maybe they include it higher. There has been discussions in the past or rumors on measures that affect the principal residents. The next is around measures targeting capital gains planning and there are also rumors about a wealth tax. Now none of those were covered in this budget and right now not clear. But again just to be very clear on the radar of where a lot of these ideas and discussions have been contemplated for your own planning when it comes to building your own wealth. As you can see, a lot of the changes that I presented here in this video was focused in the housing market. And when it comes to that, what I wanted to encourage is to make sure that you open the conversation with your legal tax or financial professional when it comes to your own wealth. And when it comes to your own wealth, one of the areas I want to encourage that you learn more is taking control of the banking function as it relates to your needs. And if you really want to learn more, make sure you visit watchibc$com and if you learned a lot from this video, please make sure you hit the like. 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