On March 28, 2023, the Federal Government released their 2032 budget. This article highlights the following financial measures:
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New transfer options associated with Bill C-208 for intergenerational transfer.
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New rules for employee ownership trusts.
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Changes to how the Alternative Minimum Tax is calculated.
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Improvements to Registered Education Savings Plans.
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Expanding access to Registered Disability Savings Plans.
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Grocery rebate.
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Deduction for tradespeople tool expenses.
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Automatic tax filing.
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New Canadian Dental Care Plan.
Amendments To Bill C-208 Intergenerational Transfer Introduces Two New Transfer Options
Budget 2023 introduces two transfer options associated with the intergenerational transfer of a business:
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An immediate intergenerational business transfer (three-year test) based on arm’s length sales terms.
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A gradual intergenerational business transfer (five-to-ten-year test) based on estate freeze characteristics.
For the three-year test, the parent must transfer both legal and factual control of the business, including an immediate transfer of a majority of voting shares and the balance, within 36 months. The parent must also transfer a majority of the common growth shares within the same time frame. Additionally, the parent must transfer management of the business to their child within a reasonable time, with a 36-month safe harbour. The child or children must retain legal control for 36 months following the share transfer, and at least one child must remain actively involved in the business during this period.
For the gradual transfer option, the conditions are similar to the immediate transfer, but with a few differences. The parent must transfer legal control, including an immediate transfer of a majority of voting shares and the balance, within 36 months. They must also transfer a majority of the common growth shares and the balance of common growth shares within the same time frame. As well, within 10 years of the initial sale, parents must reduce the economic value of their debt and equity interests in the business to 50% of the value of their interest in a farm or fishing corporation at the initial sale time, or 30% of the value of their interest in a small business corporation at the initial sale time. The child or children must retain legal control for the greater of 60 months or until the business transfer is completed, and at least one child must remain actively involved in the business during this period.
The extended intergenerational transfer now applies to children, grandchildren, stepchildren, children-in-law, nieces and nephews and grandnieces and grandnephews.
The changes apply to transactions that occur on or after January 1, 2024. If the election is made, the capital gain reserve period is extended to ten years, and the limitation period for assessing a return is extended to three years for an immediate transfer and ten years for a gradual business transfer.
New Rules for Employee Ownership Trusts
The employees of a business can use an employee ownership trust (EOT) to purchase the business without having to pay the owner directly to acquire shares. Business owners can use an EOT as part of their succession planning.
Budget 2023 introduces new rules for using ownership trusts (EOTs) as follows:
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Extending the five-year capital gains reserve to ten years for qualifying business transfers to an EOT.
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A new exception to the current shareholder loan rule which extends the repayment period from one to fifteen years for amounts loaned to the EOT from a qualifying business to purchase shares in a qualifying business transfer.
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Exempts EOTs from the 21-year deemed disposition rule that applies to some trusts. This means that shares can be held indefinitely for the benefit of employees.
Clean Energy Credits
The upcoming Budget 2023 is set to introduce a series of measures aimed at encouraging the adoption of clean energy. These measures include several business tax incentives such as:
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Clean Electricity Investment Tax Credit: This is a refundable tax credit of 15% for investments in equipment and activities for generating electricity and transmitting it between provinces. The credit will be available to new and refurbished projects starting from March 28, 2023, and will end in 2034.
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Clean Technology Manufacturing Credit: This tax credit is worth 30% of the cost of investments in new machinery and equipment for processing or manufacturing clean technologies and critical minerals. It applies to property acquired and put into use after January 1, 2024. The credit will be phased out starting in 2032 and fully eliminated in 2034.
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Clean Hydrogen Investment Tax Credit: It offers a refundable tax credit ranging from 15% to 40% of eligible project expenses that produce clean hydrogen, as well as a 15% tax credit for certain equipment.
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Clean Technology Investment Tax Credit: This tax credit will be expanded to include geothermal systems that qualify for capital cost allowance under Classes 43.1 and 43.2. The phase-out will begin in 2034, and it will not be available after that date.
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Carbon Capture, Utilization and Storage Investment Tax Credit (CCUS): The budget broadens and adjusts specific criteria for the refundable Investment Tax Credit (ITC) for CCUS. Qualified equipment now includes dual-purpose machinery that generates heat and/or power or utilizes water for CCUS and an additional process, as long as it meets all other requirements for the credit. The expense of such equipment is eligible on a proportionate basis, based on the anticipated energy or material balance supporting the CCUS process during the project’s initial 20 years.
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Reduced rates for zero-emission technology manufacturers: The reduced tax rates of 4.5% and 7.5% for zero-emission technology manufacturers will be extended for three years until 2034, with phase-out starting in 2032. The eligibility will expand to include the manufacturing of nuclear energy equipment and processing and recycling of nuclear fuels and heavy water for taxation years starting after 2023.
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Lithium from brines: Allow producers of lithium from brines to issue flow-through shares and expand the Critical Mineral Exploration Tax Credit’s eligibility to include lithium from brines.
Changes To How Alternative Minimum Tax Is Calculated
Budget 2023 proposed several changes to calculating the Alternative Minimum Tax (AMT), including the following:
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The capital gains inclusion rate will increase from 80 percent to 100 percent, while capital losses and allowable business investment losses will apply at a rate of 50 percent.
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The inclusion rate for employee stock option benefits will be altered to 100 percent, and for capital gains resulting from the donation of publicly listed securities, it will be modified to 30 percent.
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The 30 percent inclusion rate will also apply to employee stock option benefits if any deduction is available because underlying shares are also publicly listed securities that were donated.
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Certain deductions and expenses will now be limited to 50 percent, and only 50 percent of non-refundable credits (excluding a special foreign tax credit) will be permitted to reduce the AMT.
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The AMT tax rate will increase from 15 percent to 20.5 percent.
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The AMT exemption will rise from the present allowable deduction of $40,000 for individuals to an amount indexed to the fourth tax bracket, expected to be $173,000 in 2024.
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The AMT carryforward period will remain unaltered at seven years.
Improving Registered Education Savings Plans (RESPs)
Budget 2023 introduces the following changes to RESPs:
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As of March 28, 2023, beneficiaries may withdraw Educational Assistance Payments (EAPs) up to $8,000 (from $5,000) for full-time programs and $4,000 (from $2,500) for part-time programs.
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Individuals who withdrew EAPs before March 28, 2023, may be able to withdraw an additional EAP amount, subject to the new limits and the plan terms.
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Divorced or separated parents can now open joint RESPs for one or more of their children.
Expanding Access to Registered Disability Savings Plans
Qualifying family members, such as a parent, a spouse, or a common-law partner, can open an RDSP and be the plan holder for an adult with mental disabilities whose ability to enter into an RDSP contract is in doubt and who does not have a legal representative.
Budget 2023 announces the government’s intention to extend the provision that allows this until December 31, 2026. To further increase access to RDSPs, the government also intends to expand the provision to include adult siblings of an RDSP beneficiary.
Grocery Rebate
The Budget 2023 will implement the Grocery Rebate, which will be a one-time payment managed through the Goods and Services Tax Credit (GSTC) system. The maximum amount that can be claimed under the Grocery Rebate is:
The implementation of the Grocery Rebate will be gradual and will follow the same income thresholds as the present GSTC regulations.
Deduction for Tradespeople’s Tool Expenses
Budget 2023 increases the employment deduction for tradespeople’s tools to $1,000 from $500. This is effective for 2023 and subsequent taxation years.
Automatic Tax Filing
The Canada Revenue Agency (CRA) will pilot a new automatic filing service for Canadians who currently do not file their taxes to help them receive certain benefits to which they are entitled.
The CRA also plans to expand taxpayer eligibility for the File My Return service, which allows taxpayers to file their tax returns by telephone.
Canadian Dental Care Plan
In Budget 2023, the federal government is investing in dental care for Canadians with the new Canadian Dental Care Plan. The plan will provide dental coverage for uninsured Canadians with annual family incomes of less than $90,000, with no co-pays for those under $70,000.
The budget allows the CRA to share taxpayer information for the Canadian Dental Care Plan with an official of Employment and Social Development Canada or Health Canada solely to administer or enforce the plan.
Wondering How This May Impact You?
If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!
Financial Advice for Business Owners
/in Blog, business owners, Estate Planning, Family, individuals, Retirees /by Coulas Insurance Ltd.We can help you determine where you are today financially and where you want to go. We can provide you guidance on how to reach your short, medium and long term financial goals.
Why work with us?
Worry less about money and gain control.
Organize your finances.
Prioritize your goals.
Focus on the big picture.
Save money to reach your goals.
What can we help you with?
We can help you with accumulation and protection
Accumulation:
Cash Management – Savings and Debt
Tax Planning
Investments
Protection:
Insurance Planning
Health Insurance
Estate Planning
How do you start?
Establish and define the financial advisor-client relationship.
Gather information about current financial situation and goals including lifestyle goals.
Analyze and evaluate current financial status.
Develop and present strategies and solutions to achieve goals.
Implement recommendations.
Monitor and review recommendations. Adjust if necessary.
Next steps…
Talk to us about helping you get your finances in order so you can achieve your lifestyle and financial goals.
Feel confident in knowing you have a plan to get to your goals.
How To Use Insurance To Provide Your Family With Financial Protection
/in Blog, life insurance /by Coulas Insurance Ltd.How To Use Insurance To Provide Your Family With Financial Protection
The best way to provide your family with financial protection is with solid insurance planning. These three types of insurance will ensure your family has the financial resources they need if you die, are injured, or become ill:
Life Insurance
Life insurance is an inexpensive way to ensure your family will have access to a tax-free lump sum payment after your death. Whether you want to give your grandchildren a helping hand getting started in life or provide financial resources for a stay-at-home parent, life insurance can be a great way to do it!
You have two main options when it comes to life insurance – term insurance and permanent life insurance.
With term insurance, you’ve got life insurance coverage for a set period (for example, five years). Premiums for term insurance are lower than for permanent life insurance, but they will rise as you age or your health changes.
With permanent life insurance, you’ve got lifetime coverage. You’ll pay more in premiums at first, but the cost will be less overall than if you buy term insurance for your entire life. Some permanent life insurance policies also allow you to contribute money beyond your premiums, where it can grow tax-free.
Not sure which type is best for you? We can help you figure this out!
Critical Illness Insurance
With critical illness insurance, you will be eligible for a tax-free lump sum of money if you’re diagnosed with a significant illness such as cancer or a stroke. While anyone can benefit from this insurance, it’s essential for self-employed people who don’t have employee benefits to help tide them over while recovering or receiving treatment.
You can spend the lump sum any way you want, including paying off your mortgage, paying for treatment not covered by provincial health care, or putting aside money for your children’s future.
Depending on the type of critical illness policy you select, you may be able to get a “return of premium” option, which means your premiums will be returned to you if you never make a claim. We can explain how to option works and what coverage we think is best for you.
Disability Insurance
Most people assume that they’ll never become disabled. But the stark reality is that 1 in 5 Canadians are considered to be living with a disability. If you couldn’t work anymore because you became disabled, this could have a disastrous impact on your family’s financial stability – especially if you’re self-employed.
With disability insurance, you’ve got financial protection to ensure you can pay your bills and maintain your family’s standard of living. We can explain how to minimize the cost of your premiums while still getting the coverage you need.
Protect Your Family
Book a meeting with us today to get started with insurance planning.
Saving for Education
/in Blog, Debt, Family, life insurance /by Coulas Insurance Ltd.Post-secondary education can be expensive, however, having the opportunity to plan for it helps with making sure that you’re capable to meet the costs of education. In addition, when you have a plan, it’s easier to make financial decisions that align with your goals and provide peace of mind. In the infographic checklist, we outline 6 factors to consider when paying for education:
For parents:
How much to save and when will your child start school?
Registered Education Savings Plan – have you set up a family RESP plan and received the Canadian Education Savings Grant? If your income is low enough, you could qualify for the Canada Learning Bond.
Savings- are you saving separately for your child’s education? Cash Value Life Insurance- have you considered using this as a savings vehicle for your child’s education. What happens if your child decides not to go to school? These alternative savings vehicles provide flexibility so that you can use the funds for something else such as a down payment for a future home.
For children:
Will the child be working part-time and have their own savings for school?
Can the child apply for scholarships, bursaries or grants?
Will they need to apply for government student loan, personal loan or personal line of credit?
If you need help planning to save for your child’s post-secondary education, contact us!
10 Essential Decisions for Business Owners
/in Blog, business owners, Estate Planning, financial advice, Financial Planning, Group Benefits, health benefits, Insurance, Investment, tax /by Coulas Insurance Ltd.10 Essential Decisions for Business Owners
Business owners are busy… they are busy running a successful business, wearing lots of hats and making a ton of decisions. We’ve put together a list of 10 essential decisions for every business owner to consider; from corporate structure to retirement and succession planning:
Best structure for your business (ex. Sole Proprietor, Corporation, Partnership)
Reduce taxes
What to do with surplus cash
Build employee loyalty
Reduce risk
Deal with the unexpected
Retire from your business
Sell your business
Keep your business in the family
What to do when you’re retired
Financial advisors are uniquely positioned to help business owners, talk to us about your situation and we can provide the guidance you need.
Why Life Insurance Should Be Part Of Your Estate Planning
/in Blog, Estate Planning, life insurance /by Coulas Insurance Ltd.Why Life Insurance Should Be Part Of Your Estate Planning
You’ve worked hard and managed your money carefully throughout your life. So rest easy knowing that you will have more than enough assets to fulfill your needs during your retirement years.
You also need to think beyond your retirement years and consider what will happen to your assets after your death. For example, it is essential to consider whether your assets could result in tax liabilities for your heirs.
Generally, there are three types of assets during estate planning:
Capital assets – shares in public or private companies, or real estate such as a second home or cottage.
Income-producing assets – assets that produce income, such as RRSPs and RRIFs.
Non-taxable assets – such as cash, TFSAs, your principal residence, and the proceeds from a life insurance policy.
How can life insurance help my heirs cover their tax liabilities?
There’s an old saying that there are only two things certain in life – death and taxes. So naturally, you do not want your loved ones to be burdened with tax liabilities when they inherit capital or income-producing assets from your estate. In most situations, the estate may not have enough cash to leave to your heirs to cover those tax liabilities.
Providing the means to cover tax liabilities upon your death is where life insurance can be such a valuable part of estate planning. With life insurance, you can both guarantee your heirs have the funds when they need them, as well as receive the death benefit tax-free. In addition, your heirs won’t have the stress of how they’ll come up with the money to pay taxes on any assets they inherit.
Are there any other reasons I should include life insurance as part of my estate planning?
Since life insurance death benefit is tax-free, it is an excellent source of liquidity to include in your estate planning. Your heirs can use the funds for a variety of purposes, including:
Paying off debts
Covering funeral expenses
As a source of income – If your family has suddenly gone from two income-earners to one, this can significantly affect their standard of living.
Provide funding for a considerable expense, such as college or university tuition.
We can help with estate planning
If you’d like to include life insurance as part of your estate planning but aren’t sure where to start – we can help you with that! We’ll talk to you about different types and amounts of life insurance coverage to see what works for you – call us or email us today!
First Home Savings Account (FHSA): What You Need to Know
/in Blog, Investment /by Coulas Insurance Ltd.The First Home Savings Account (FHSA) is a savings plan designed for first-time home buyers in Canada, which allows them to save up to $40,000 tax-free. Contributions to an FHSA are tax-deductible, similar to Registered Retirement Savings Plans (RRSP). Additionally, income and gains earned inside the account and withdrawals are tax-free, like a Tax-Free Savings Account (TFSA).
In this article and accompanying infographic, we will provide you with the necessary information you need to know about FHSA, including eligibility requirements, contributions and deductions, income and gains, qualifying investments, withdrawals, and transfers.
Eligibility Requirements
To be able to open an FHSA, you need to meet all the following eligibility requirements:
Residency: You must be an individual who is a resident of Canada.
Age: You must be at least 18 and not reach 72 in the current year.
First-time Home Buyer: You must be a first-time home buyer, which means that neither you nor your spouse had owned a qualifying home that was your principal residence at any point during the calendar year or the preceding four calendar years before the account was opened.
Contributions and Deductions
There are limits to the amount you can contribute to your FHSA.
The annual contribution limit is $8,000.
The lifetime contribution limit is $40,000.
If you do not contribute the full amount each year, the contribution room carries forward to the following year. However, carry-forward amounts only start accumulating after you open an FHSA for the first time, and they do not automatically begin when you turn 18.
Any excess contributions are subject to a penalty of 1% per month.
Tax Deductions
By claiming contributions made to FHSA accounts as a deduction against all taxable income sources, the amount of taxable income for the year can be reduced, resulting in a decrease in the amount of taxes payable.
Suppose you choose not to claim the FHSA deduction in the year. In that case, you can carry forward the unused contribution amounts indefinitely and claim them as a deduction later, like RRSP deductions.
Qualifying Investments
Qualifying investments for an FHSA are like those allowed in RRSPs and TFSAs, including mutual funds, segregated funds, ETFs, stocks, bonds, and GICs.
Incomes and Gains
The income and capital gains earned in an FHSA are not included in your annual income for tax purposes and therefore are not deductible. This means that the investment can continue to grow and compound within the FHSA tax-free like a TFSA.
Qualifying Withdrawals
Withdrawals from an FHSA are subject to specific rules and conditions. Qualifying withdrawals made to purchase a home are tax-free but must meet specific criteria:
The person making the withdrawal must be a first-time home buyer and a Canadian resident.
They must also intend to use the property as their primary residence within one year of purchasing or building it.
The home being purchased must be in Canada, and a written agreement to buy or build the home must be in place before October 1st of the year following the withdrawal.
It is not possible to restore FHSA contribution limits by making withdrawals or transfers.
Transfers
Unused funds in an FHSA account following a qualifying withdrawal can be transferred tax-free to an RRSP or Registered Retirement Income Fund (RRIF) until the end of the following year from the year of the first withdrawal. Transfers do not affect the available RRSP contribution room, but the transferred funds will be taxable when withdrawn from the account.
It’s important to remember that there are limitations on how long you can keep your FHSA account. You must close your FHSA after you’ve held it for 15 years or by the end of the year in which you turn 71, whichever comes first.
If you’re considering opening an FHSA or saving for a home, we can help; contact us.
Essential tips and tricks for paying less tax and keeping more of your retirement income
/in Blog, retirement /by Coulas Insurance Ltd.Essential tips and tricks for paying less tax and keeping more of your retirement income
Most of your retirement income sources are taxable; Canadian Pension Plan (CPP), your personal pension plan (if you have one) and income from your RRIFs. However, if you’ve set up a TFSA in addition to your RRSPs, then you’re in luck – money you take out of your TFSA isn’t taxable!
We have some tips on combining savvy withdrawal strategies with retirement-related tax deductions to keep more of your retirement income.
Make a Plan
Determine all the different sources of retirement income you’ll have – don’t forget about things like annuities, GICs or income from a rental property if you have one. Once you have a complete list, a professional financial advisor can give you tips on when it’s best to start collecting pension income as well as how much to withdraw from your taxable investments. A strong plan can help reduce the amount of tax you have to pay and extend the life of your retirement income!
Split your pension income
If you have reached the age of 65 and have a pension, you can split up to 50% of the pension income with your spouse. Splitting your pension with a lower-income spouse can add up to savings, as this will cut down on the amount of taxes you’ll have to pay overall.
While rewarding, the process to split your pension income can be complicated, so it’s best to get professional advice before starting this process.
Buy an annuity
Annuities are a financial product that will provide you with a guaranteed regular income – a good choice if you are worried about your retirement savings running out.
These are the most common types of annuities:
Life annuities provide you with a guaranteed lifetime income, with the option for the annuity to be paid to a beneficiary after you die.
Term-certain annuities provide guaranteed income payments for a fixed period. A beneficiary or your estate will receive regular payments if you die before the term ends.
Variable annuities will provide you with both a fixed income and a variable income. The variable income will be based on the return of the annuity provider on the performance of the investments your annuity provider invests your money in.
All types of annuities will spread out the income from your retirement savings to lessen the tax you pay each year.
Take advantage of tax breaks
Now that you’re retired, there are retirement-related tax breaks you need to know about. Here are some of the tax breaks or credits you may be eligible for:
The age amount
The home accessibility tax credit
The medical expense tax credit
The disability tax credit
The pension income tax credit
We can help!
We can put together a plan that helps you keep more of your retirement income – call us today!
Tax Tips You Need To Know Before Filing Your 2022 Taxes
/in 2023, Blog, disability, tax /by Coulas Insurance Ltd.Tax Tips You Need To Know Before Filing Your 2022 Taxes
This year’s tax deadline is May 1, 2023, as April 30 falls on a Sunday this year. It’s important to make sure you’re claiming all the credits and deductions you’re eligible for. In this article, we’ll provide you with tips to help you maximize your tax refund and ensure you’re taking advantage of all the available tax benefits.
Canada Workers Benefit
The Canada Workers Benefit (CWB) is a refundable tax credit designed to help low-income working families and individuals. The credit is made up of two parts:
The basic amount
A disability supplement (if you qualify).
To determine whether you qualify for the tax credit, you’ll need to consider your net income and where you live. The CRA website provides full details about the net income qualification amounts.
The maximum amounts you can qualify for are as follows:
The maximum basic amount is $1,428 for single individuals and $2,461 for families.
The maximum amount for the disability supplement is $737 for single individuals and $737 for families.
Claiming Home Office Expenses Due To COVID-19
You can still claim home office expenses if you’re not self-employed but worked from home due to the pandemic. You can:
Claim the temporary flat amount if you worked more than 50% of the time from home for at least four consecutive weeks in 2022. You can claim $2 for each day worked from home, up to a maximum of $500. No paperwork or forms are required!
Use the detailed method and claim the actual amounts. In this case, you’ll need supporting documentation, plus a completed and signed T2200S form from your employer. You can claim various applicable expenses, including home Internet access fees.
The Tax Deduction for Zero-Emissions Vehicles
A capital cost allowance (CCA) is a tax deduction that helps cover the cost of an asset’s depreciation over time. The CRA created two new capital cost allowances, which apply to zero-emission vehicles bought after March 18, 2019.
They are as follows:
Class 54. This class is for motor and passenger vehicles, excluding taxis or vehicles used for lease or rent. It has a CCA rate of 30%. For 2022, capital costs will be deductible up to $55,000, plus sales tax. This amount will be reassessed every year.
Class 55 is for leased and rented vehicles or taxis. The CCA rate is 40%.
Return Of Fuel Charge Proceeds To Farmers Tax Credit
You may be eligible for this tax credit if you are either self-employed or part of a farming partnership in Alberta, Manitoba, Ontario and Saskatchewan.
This tax credit aims to help farmers offset the high cost of the carbon tax.
Eligible Educator School Supply Tax Credit
You can claim up to $1,000 of eligible supplies and expenses if you qualify for the educator school supply tax credit.
The tax credit rate for the 2022 tax year is 25%, with a maximum credit of $250.
Need help?
Do you qualify for a credit or deduction? Call us – we’re here to save you money on your taxes!
Why A Buy-Sell Agreement Is Vital For Your Business
/in Blog, business owners, buy sell /by Coulas Insurance Ltd.Why A Buy-Sell Agreement Is Vital For Your Business
The purpose of a buy-sell agreement is to establish a set of rules or actions (that are legally binding) for what must happen to a business if one or more of the business owners is no longer involved.
Why does my business need a buy‐sell agreement?
A buy-sell agreement is vital for your business as it protects the shareholders and the business itself if one of the partners exits the business for any reason.
A buy-sell agreement offers so many benefits for your business. It:
What are the different types of buy-sell agreements?
These are the most common types of buy-sell agreements:
What do I need to cover in my buy‐sell agreement?
Your buy-sell agreement must address the following:
What is the best way to fund my buy-sell agreement?
This needs to be addressed when putting the buy-sell agreement together and can be challenging in the case of some “triggers,” such as a business owner getting a divorce or a disagreement between business owners.
In the case of the death of a business owner or a business owner becoming disabled, the buy-sell agreement can be funded by insurance. Insurance provides both immediate capital and significant tax benefits.
We Can Help!
Buy-sell agreements can be complex and challenging, but they are vital to protect your business and your personal interests. We can explain the best way to set one up – reach out to us today to get started!
Federal Budget 2023 Highlights
/in 2023, Blog, business owners, dental benefits, Family, Financial Planning, individuals /by Coulas Insurance Ltd.On March 28, 2023, the Federal Government released their 2032 budget. This article highlights the following financial measures:
New transfer options associated with Bill C-208 for intergenerational transfer.
New rules for employee ownership trusts.
Changes to how the Alternative Minimum Tax is calculated.
Improvements to Registered Education Savings Plans.
Expanding access to Registered Disability Savings Plans.
Grocery rebate.
Deduction for tradespeople tool expenses.
Automatic tax filing.
New Canadian Dental Care Plan.
Amendments To Bill C-208 Intergenerational Transfer Introduces Two New Transfer Options
Budget 2023 introduces two transfer options associated with the intergenerational transfer of a business:
An immediate intergenerational business transfer (three-year test) based on arm’s length sales terms.
A gradual intergenerational business transfer (five-to-ten-year test) based on estate freeze characteristics.
For the three-year test, the parent must transfer both legal and factual control of the business, including an immediate transfer of a majority of voting shares and the balance, within 36 months. The parent must also transfer a majority of the common growth shares within the same time frame. Additionally, the parent must transfer management of the business to their child within a reasonable time, with a 36-month safe harbour. The child or children must retain legal control for 36 months following the share transfer, and at least one child must remain actively involved in the business during this period.
For the gradual transfer option, the conditions are similar to the immediate transfer, but with a few differences. The parent must transfer legal control, including an immediate transfer of a majority of voting shares and the balance, within 36 months. They must also transfer a majority of the common growth shares and the balance of common growth shares within the same time frame. As well, within 10 years of the initial sale, parents must reduce the economic value of their debt and equity interests in the business to 50% of the value of their interest in a farm or fishing corporation at the initial sale time, or 30% of the value of their interest in a small business corporation at the initial sale time. The child or children must retain legal control for the greater of 60 months or until the business transfer is completed, and at least one child must remain actively involved in the business during this period.
The extended intergenerational transfer now applies to children, grandchildren, stepchildren, children-in-law, nieces and nephews and grandnieces and grandnephews.
The changes apply to transactions that occur on or after January 1, 2024. If the election is made, the capital gain reserve period is extended to ten years, and the limitation period for assessing a return is extended to three years for an immediate transfer and ten years for a gradual business transfer.
New Rules for Employee Ownership Trusts
The employees of a business can use an employee ownership trust (EOT) to purchase the business without having to pay the owner directly to acquire shares. Business owners can use an EOT as part of their succession planning.
Budget 2023 introduces new rules for using ownership trusts (EOTs) as follows:
Extending the five-year capital gains reserve to ten years for qualifying business transfers to an EOT.
A new exception to the current shareholder loan rule which extends the repayment period from one to fifteen years for amounts loaned to the EOT from a qualifying business to purchase shares in a qualifying business transfer.
Exempts EOTs from the 21-year deemed disposition rule that applies to some trusts. This means that shares can be held indefinitely for the benefit of employees.
Clean Energy Credits
The upcoming Budget 2023 is set to introduce a series of measures aimed at encouraging the adoption of clean energy. These measures include several business tax incentives such as:
Clean Electricity Investment Tax Credit: This is a refundable tax credit of 15% for investments in equipment and activities for generating electricity and transmitting it between provinces. The credit will be available to new and refurbished projects starting from March 28, 2023, and will end in 2034.
Clean Technology Manufacturing Credit: This tax credit is worth 30% of the cost of investments in new machinery and equipment for processing or manufacturing clean technologies and critical minerals. It applies to property acquired and put into use after January 1, 2024. The credit will be phased out starting in 2032 and fully eliminated in 2034.
Clean Hydrogen Investment Tax Credit: It offers a refundable tax credit ranging from 15% to 40% of eligible project expenses that produce clean hydrogen, as well as a 15% tax credit for certain equipment.
Clean Technology Investment Tax Credit: This tax credit will be expanded to include geothermal systems that qualify for capital cost allowance under Classes 43.1 and 43.2. The phase-out will begin in 2034, and it will not be available after that date.
Carbon Capture, Utilization and Storage Investment Tax Credit (CCUS): The budget broadens and adjusts specific criteria for the refundable Investment Tax Credit (ITC) for CCUS. Qualified equipment now includes dual-purpose machinery that generates heat and/or power or utilizes water for CCUS and an additional process, as long as it meets all other requirements for the credit. The expense of such equipment is eligible on a proportionate basis, based on the anticipated energy or material balance supporting the CCUS process during the project’s initial 20 years.
Reduced rates for zero-emission technology manufacturers: The reduced tax rates of 4.5% and 7.5% for zero-emission technology manufacturers will be extended for three years until 2034, with phase-out starting in 2032. The eligibility will expand to include the manufacturing of nuclear energy equipment and processing and recycling of nuclear fuels and heavy water for taxation years starting after 2023.
Lithium from brines: Allow producers of lithium from brines to issue flow-through shares and expand the Critical Mineral Exploration Tax Credit’s eligibility to include lithium from brines.
Changes To How Alternative Minimum Tax Is Calculated
Budget 2023 proposed several changes to calculating the Alternative Minimum Tax (AMT), including the following:
The capital gains inclusion rate will increase from 80 percent to 100 percent, while capital losses and allowable business investment losses will apply at a rate of 50 percent.
The inclusion rate for employee stock option benefits will be altered to 100 percent, and for capital gains resulting from the donation of publicly listed securities, it will be modified to 30 percent.
The 30 percent inclusion rate will also apply to employee stock option benefits if any deduction is available because underlying shares are also publicly listed securities that were donated.
Certain deductions and expenses will now be limited to 50 percent, and only 50 percent of non-refundable credits (excluding a special foreign tax credit) will be permitted to reduce the AMT.
The AMT tax rate will increase from 15 percent to 20.5 percent.
The AMT exemption will rise from the present allowable deduction of $40,000 for individuals to an amount indexed to the fourth tax bracket, expected to be $173,000 in 2024.
The AMT carryforward period will remain unaltered at seven years.
Improving Registered Education Savings Plans (RESPs)
Budget 2023 introduces the following changes to RESPs:
As of March 28, 2023, beneficiaries may withdraw Educational Assistance Payments (EAPs) up to $8,000 (from $5,000) for full-time programs and $4,000 (from $2,500) for part-time programs.
Individuals who withdrew EAPs before March 28, 2023, may be able to withdraw an additional EAP amount, subject to the new limits and the plan terms.
Divorced or separated parents can now open joint RESPs for one or more of their children.
Expanding Access to Registered Disability Savings Plans
Qualifying family members, such as a parent, a spouse, or a common-law partner, can open an RDSP and be the plan holder for an adult with mental disabilities whose ability to enter into an RDSP contract is in doubt and who does not have a legal representative.
Budget 2023 announces the government’s intention to extend the provision that allows this until December 31, 2026. To further increase access to RDSPs, the government also intends to expand the provision to include adult siblings of an RDSP beneficiary.
Grocery Rebate
The Budget 2023 will implement the Grocery Rebate, which will be a one-time payment managed through the Goods and Services Tax Credit (GSTC) system. The maximum amount that can be claimed under the Grocery Rebate is:
$153 for each adult
$81 for each child
$81 for a single supplement.
The implementation of the Grocery Rebate will be gradual and will follow the same income thresholds as the present GSTC regulations.
Deduction for Tradespeople’s Tool Expenses
Budget 2023 increases the employment deduction for tradespeople’s tools to $1,000 from $500. This is effective for 2023 and subsequent taxation years.
Automatic Tax Filing
The Canada Revenue Agency (CRA) will pilot a new automatic filing service for Canadians who currently do not file their taxes to help them receive certain benefits to which they are entitled.
The CRA also plans to expand taxpayer eligibility for the File My Return service, which allows taxpayers to file their tax returns by telephone.
Canadian Dental Care Plan
In Budget 2023, the federal government is investing in dental care for Canadians with the new Canadian Dental Care Plan. The plan will provide dental coverage for uninsured Canadians with annual family incomes of less than $90,000, with no co-pays for those under $70,000.
The budget allows the CRA to share taxpayer information for the Canadian Dental Care Plan with an official of Employment and Social Development Canada or Health Canada solely to administer or enforce the plan.
Wondering How This May Impact You?
If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!