Investment income in a CCPC

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AltaRed
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Re: Investment income in a CCPC

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Re: Investment income in a CCPC

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The PDF at the bottom of this link may help:http://www.fin.gc.ca/activty/consult/tppc-pfsp-eng.pdf

IMHO, the CCPC was not meant to be an investment vehicle (at least not in the narrow sense...) ISTM that this eventual action from the government was inevitable.

(OOPS! The above link is the actual PDF. Here is the link that i thought I was referring too :oops: :http://www.fin.gc.ca/activty/consult/tppc-pfsp-eng.asp)
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Re: Investment income in a CCPC

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Thanks for the link, that clarifies things... pretty bleak
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Re: Investment income in a CCPC

Post by couponstrip »

Well that's the end of that.

Dividend sprinkling gone.

Retaining income in the CCPC to invest over decades and defer tax gone.

It sounds like business income earned prior to these changes will not be affected apart from the passive income generated from the investments which may be taxed differently.

In the context of a new CCPC or one with no retained earnings to date, I see no way to offset the setup and yearly accounting/legal fees in a CCPC when used as an investment vehicle as it currently is by many professionals.
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Re: Investment income in a CCPC

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Its OK
I'm sure they will be going after the Gold plated pensions of the public and union sectors as well.
Wait, you don't suspect a CONFLICT OF INTEREST amongst the ruling class??
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Re: Investment income in a CCPC

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whats still not clear to me after reviewing this in a bit more detail

In their models one invests retained earning in CCPC, they take away the refund on prepayed tax etc so that income after tax is the same as if it was growing unregistered in personal account. But, what if your personal tax rate down the road is lower (ie you are no longer in top tax bracket) would there not still be potential tax deferral benefit?
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Re: Investment income in a CCPC

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Table of Contents
Minister’s Letter ................................................................................................................................ 3
Executive Summary ........................................................................................................................... 5
A. Introduction .................................................................................................................................. 7
B. Income Sprinkling ....................................................................................................................... 18
Background ............................................................................................................................................18
Proposed Measures................................................................................................................................ 23
Next Steps...............................................................................................................................................31
C. Holding Passive Investments Inside a Private Corporation......................................................... 32
Background ........................................................................................................................................... 32
Possible Approaches ...............................................................................................................................41
Questions for Consultation......................................................................................................................54
D. Converting Income into Capital Gains ......................................................................................... 55
Background ............................................................................................................................................55
Proposed Measures................................................................................................................................ 60
Next Steps..............................................

This is the table of contents from the link

Note that when it comes to income sprinkling and converting income into capital gains, both sections are subdivided into background, proposed measures and next steps.

However, the section on holding passive investments inside a private corporation is subdivided into background, possible approaches and questions for consultation.
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Re: Investment income in a CCPC

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If this goes through there will be no advantage in paying dividends to your kids,it remains to be seen whether that will apply to your spouse too although I suspect that is likely,perhaps an exemption for people with a disability tax credit like they did with testamentary trusts might be hoped for.
Of course a corporation may still be useful for retirement planning if the principal taxpayer contributes exclusively to spousal RRSPs and accesses retained earnings for his/her own '"pension" saving but there is also the law of unintended consequences-e.g.estate freezing through a corporation is likely to be "iffy".
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Re: Investment income in a CCPC

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Doug wrote: 19 Jul 2017 02:40
Note that when it comes to income sprinkling and converting income into capital gains, both sections are subdivided into background, proposed measures and next steps.

However, the section on holding passive investments inside a private corporation is subdivided into background, possible approaches and questions for consultation.
I don't think there is any doubt that they plan to eliminate the tax deferral. It's just a matter of how at this point for which they are seeking feedback from financial professionals. They propose a number of ideas in the document, any of which would eliminate the deferral, some of which might be overkill/have unintended consequences. Hence the consultation.

This tax loophole will officially be closed.
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Re: Investment income in a CCPC

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in the document my interpretation is that they want tax invested in the corp passively to end up being equal to personal tax on passive investment, hence eliminating any rate benefit to the deferral (ie before capital gains inside CCPC did better than personal/RRSP/TFSA) but i do not see the possibility of a deferral being eliminated in their examples.

ie if a young professional wanted to work hard, earns 500K for 15 years, then wants to retire early on a lower income, I would think smoothing out their income through the corporation would still be advantageous no?

I guess we will see what they actually propose in Oct
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Re: Investment income in a CCPC

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IIRC Professional athletes have had special concessions allowing them to do just that.Of course they are more deserving than the rest of us I suppose.And when I came to Canada in 1972 there was an averaging provision in the tax code and investment income was taxed as received rather than on an accrual basis.RRSP limit was 20%of the current years income instead of 18% of last years etc-how things have changed-and all for our own good thanks to the benevolence of our government.
Its so much fairer now!!
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Re: Investment income in a CCPC

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tdiddy wrote: 19 Jul 2017 12:58 in the document my interpretation is that they want tax invested in the corp passively to end up being equal to personal tax on passive investment, hence eliminating any rate benefit to the deferral (ie before capital gains inside CCPC did better than personal/RRSP/TFSA) but i do not see the possibility of a deferral being eliminated in their examples.

ie if a young professional wanted to work hard, earns 500K for 15 years, then wants to retire early on a lower income, I would think smoothing out their income through the corporation would still be advantageous no?

I guess we will see what they actually propose in Oct
It's possible I am not understanding the document, but in the first example, it looks to me that they would tax all income in the corp at the same rate as if you earned it personally, and then only refund tax down to the small business rate if you can show that you used the money to reinvest in the business. I don't see a way to defer tax in that circumstance.

The devil will be in the details, and for those, we will have to wait until October.
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Re: Investment income in a CCPC

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you mean table 6, the '1972 example' yes in that case it would be tricky as you said but the document states the government is not pursuing this approach, rather they are looking at a deferred taxation model (table 7 and 8 )

anyways fingers crossed for Oct
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Re: Investment income in a CCPC

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couponstrip wrote: 19 Jul 2017 11:18
Doug wrote: 19 Jul 2017 02:40
Note that when it comes to income sprinkling and converting income into capital gains, both sections are subdivided into background, proposed measures and next steps.

However, the section on holding passive investments inside a private corporation is subdivided into background, possible approaches and questions for consultation.
I don't think there is any doubt that they plan to eliminate the tax deferral...This tax loophole will officially be closed.
+1 . You are right.
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Re: Investment income in a CCPC

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I'm an MD that graduated last year. I haven't incorporated yet as I still have some debt to service but if this goes through is there any reason to incorporate at all? I can't income split as my partner makes lots.

I do agree that dividend sprinkling was a bit absurd and already gave an advantage to people that didn't really need it.

Maybe they'll change the way they pay physicians and give me a salary, with benefits, DB pension, 4weeks+ of vacation to compensate? :lol:
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Re: Investment income in a CCPC

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I've read through the document but can't make out whether ,if it goes through,it would be operative for the 2017 tax year or in 2018? And what would be the effect on those who are already retired and have converted to a holding company? Have any of you figured that out?
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Re: Investment income in a CCPC

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nisser wrote: 20 Jul 2017 00:19 I'm an MD that graduated last year. I haven't incorporated yet as I still have some debt to service but if this goes through is there any reason to incorporate at all? I can't income split as my partner makes lots.

I do agree that dividend sprinkling was a bit absurd and already gave an advantage to people that didn't really need it.

Maybe they'll change the way they pay physicians and give me a salary, with benefits, DB pension, 4weeks+ of vacation to compensate? :lol:
I would certainly wait until Oct 2 at the least

How much did you estimate making? well above max tax bracket or only a little bit? Still a lot of details to be sorted out re passive investment. One thing I would say with some certainty is RRSP and TFSA will now trump CCPC long term so if your net income before tax is in the mid to low 200's may not be worth it.

There are other benefits to CCPC, you can set up a PHSP (this saved me a ton of money on dental work), not sure how above changes could affect corporate life insurance policies that some colleagues have set up. I believe it is tax adventitious to write off entertainment expenses from CCPC vs personal... talk to you accountant of course!
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Re: Investment income in a CCPC

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This year will be my full year and I'm on path to make $400,000. That would be well over what I expect in years where I slow down but generally it would be 250-300k.
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Re: Investment income in a CCPC

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On the topic “Holding Passive Investments Inside a Private Corporation”, a concern is what happens to unrealized capital gain of passive investments held in a private corporations today? Would proposed changes trigger a deemed disposition and capital gains tax due when this change becomes effective? Could passive assets be transferred out of the private corp to shareholders at cost basis? I understand a rental property will be considered a passive investment. If one invested a rental property through a private corp andreinvested net income after taxes in REITs, both will be considered passive. Will it still make sense to hold these assets in the private corp for other reasons (like limited liability and estate planning). Any thoughts or is it too early?

From the Department of Finance paper, this statement….
“Transition: Existing stocks of passive assets held in Canadian private corporations are significant. It is the intent that the new rules would apply on a go-forward basis. Once a new approach is determined for the tax treatment of passive investment income, the Government will consider how to ensure that the new rules have limited impacts on existing passive investments”
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Re: Investment income in a CCPC

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nisser wrote: 20 Jul 2017 00:19 I'm an MD that graduated last year. I haven't incorporated yet as I still have some debt to service but if this goes through is there any reason to incorporate at all? I can't income split as my partner makes lots.
As far as I know, lowering income taxes was the main advantage of incorporating for professionals. The other main reason for incorporation, liniting personal liability, probably does not apply to you. In Ontario at least, doctors and lawyers are not allowed to limit their liability in this way.

There remain a few advantages to incorporation, but they are minor. It's easier to justify paying relatives (again, not significant in your case) and perhaps a tad more lenient with claiming business expenses, but nothing really worth while.

That said, I note that the government has opened a consultation process, so the details still have to be worked out. I expect that the situation for 2017 will be relatively unaffected, and that 2018 will be the first year of significant change.

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Re: Investment income in a CCPC

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Moneybags Morneau reprimands rich people for having brains
John Robson wrote:Aaaack! What did the federal finance minister just say? Did he really just discover that rich people take advantage of complexities in the tax code to pay less? Can’t anybody here play this game?

[...]

Here’s what Morneau actually said: “Many of the richest Canadians are unfairly exploiting the tax rules designed to help businesses thrive. We know that businesses, including small businesses, help grow the Canadian economy. These tax advantages are in place to help these businesses reinvest and grow, find new customers, buy new equipment and hire more people. We want to make sure those rules are used to do just that, and not to give unfair tax advantages to certain — often high-income — individuals.”

Is that a fright wig and red putty nose you’re wearing? Are you seriously complaining that rich people hire accountants and lawyers to help them navigate through our absurdly complex tax code to happy low-tax havens? Like, say, one J. Trudeau, who lashed out at sheltering income in small companies after routing his own juicy speaking fees through a numbered corporation. Dawk.

[...]

Especially because Morneau is a rich person himself, he’d have to be an utter klonk not to know that if you build it they will come, and the more it’s worth to someone to find a convenient loophole the harder they’ll look for it. What’s the point of saying they do it “unfairly”? What they do is legal, and they didn’t write the tax code. They just stagger around under its appalling weight like the rest of us. And they don’t like it any more than we do.
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Re: Investment income in a CCPC

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This video makes the point that dividend sprinkling will very likely change for the 2018 year. About the use of corporate income for passive investments, there's a bit more uncertainty about the change date. As for taking out money from a corp using cap gains, the video states that the change occurs July 18/2017.
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Re: Investment income in a CCPC

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There are a number of implications for med corps other than "tax fairness"Doug".
Here are just two:
One is the matter of trust.In most cases the ability to incorporate was offered by government as a substitute for fee increases and the benefit was fully and explicitly intended-it was not an accident.If implemented this change in tax treatment is equivalent to a massive rollback ,is prima facie evidence of bad faith on the part of governments and will make future negotiations extremely difficult.
There is also the fact that the retained earnings have acted as a set of "golden handcuffs" since leaving Canada resulted in the value of the corp being subject to departure tax.No corp means no handcuffs!
Taken together these two factors alone are likely to accelerate the "brain drain" of young doctors from Canada at the very time when more are needed because of the ageing population.Seeing how their elders have been treated what young graduate in his/her right mind is going to want to practice even in our cities under these circumstances let alone in more remote locations? The temptation to go south will be almost irresistible.
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Re: Investment income in a CCPC

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You are talking about unintended consequences. You need to get your lobbyists active to enable an exception for professional corporations.
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Re: Investment income in a CCPC

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Unfortunately Keith it is not unintended.Essentially it is the equivalent of the government suddenly deciding to bring all RRSP or RRIF funds into income in one year.
I don't really have a personal axe to grind here since I am retired and my children are both over 30 and self supporting,but I do remember the fanfare when doctors in Manitoba were first permitted to incorporate in about the year 2000.It was no secret that one intent was to persuade some of them to practice in the northern parts of the province by providing a mechanism whereby they could save in a corporation for a few years before using the money to subsidize themselves later while doing speciality training.Prior to that professionals were not allowed to incorporate at all although other businesses were allowed to.Since they are not permitted to limit their liability thereby the only possible benefit is the tax benefit so to claim that benefit was unintended makes no sense.
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