2019 - The Year of Change
With the start of a new year come new rules and regulations that our Federal Government introduced last year. Some changes are simple; for example, the 2019 annual TFSA limit will increase from $5,500 to $6,000. Other changes, however, are much more complex: small business owners (CCPCs) now must be aware of a passive income (interest, dividends and capital gains – with a few adjustments, referred to as AAII) threshold which reduces the eligibility for the small business deduction by $5 for each $1 of AAII that exceeds this threshold (starting at $50,000). Furthermore, the once popular mechanism of income splitting amongst multiple family members is no longer as tax efficient as it once was. If you still plan on splitting income amongst your spouse and children, you better be able to prove they have been working in the business.
If you are a small business owner or incorporated individual, there are several options to limit passive income to reduce the impact of the new changes, including making use of IPPs, utilizing unused RRSP and TFSA room, re-structuring your investment portfolio to limit interest and dividends or over-funding a permanent life insurance policy inside your corporation. Clearly, there is no “one size fits all” solution and every individual’s scenario requires an assessment prior to recommendations being made.
As shown above, the changes made by the Federal Government for 2019 can be both positive (an increase in TFSA limits) and negative (a passive income threshold for private corporations). At McClary we want to help you successfully navigate these new rules in conjunction with your Accountant to ensure you maximize your wealth by being as tax efficient as possible.
By Will Kemski