Author: Thomas Fellhauer
Tom is a partner with Pushor Mitchell LLP who serves a wide range of clients in the areas of income tax appeals, tax and estate planning, wealth management, trusts, incorporations, corporate reorganizations, charities law…
Under the Income Tax Act (the "ITA") of Canada, Canadian residents are subject to income tax on all worldwide income. On the other hand, non-residents are only subject to tax on income tied to Canadian sources. Although this may sound straightforward, determining your liability and extent of liability can be complicated and the consequences for failing to comply can be significant. Here is a list of some important considerations:
If you are self-employed or a professional or you own a business, you are probably already doing tax planning each year to minimize the tax you pay.
Let’s see what is the best thing to do in British Columbia, Canada.
Even though no changes were included in the February 11, 2014 Federal Budget or the February 18, 2014 B.C. Budget, the previous changes announced in the February 19, 2013 B.C. Budget and the March 21, 2013 Federal Budget change the way dividends and salaries are taxed in 2014.
Tax rates are going up, but there is some good news!
The recent BC Government Budget on February 19, 2013 and the Federal Government Budget on March 21, 2013 weren’t particularly pleasant when it comes to tax rates. The tax rates for dividends are going up substantially and in BC we will have a new higher tax bracket of 45.8% for individuals who earn more than $150,000 per year.
There are many types of income splitting strategies which are used in Canada. All of them are based on the fact that in Canada each person is taxed separately. As a result, there are significant tax savings where income is divided among family members. It works particularly well with children who are 18 years old or older and are full-time students. It is possible to put together a strategy where your children’s tuition fees and education costs are completely paid for with tax-free money.
A family trust is an excellent tool to minimize taxes through income splitting. It is particularly useful for parents who want to provide financial support for their children’s post-secondary education expenses.
A family trust can be used by business owners, professionals and self-employed persons to save taxes through income splitting with family members. To use a family trust in this fashion, you need to operate your business activities through a corporation.
Most successful family-owned small to medium sized businesses will run reasonably well and will continue to be reasonably profitable as long as the founder is directly involved. However, very few businesses thrive or even survive after the death of the founder. Yet most business owners ignore this reality and fail to develop effective and realistic business succession plans.
Most of my practice involves advising business owners. In my experience, in many families, the family business represents more than 50% of their total net worth.
About Legal Alert
Pushor Mitchell’s “Legal Alert Blog” evolved from our long-running “Legal Alert” client newsletter. Here, we share news our clients need to know, such as changes to the law, major case decisions, industry trends, and other legal issues that affect people and organizations in B.C. Occasionally, we also share firm news and announcements, as well as stories about our involvement with community groups throughout the Okanagan.
If you enjoy our blog, please consider subscribing to our monthly Legal Alert newsletter, which includes monthly highlights from our blog and firm news.