Investment income in a CCPC

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nisser
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Re: Investment income in a CCPC

Post by nisser »

adrian2 wrote: 25 Jul 2017 23:36
fireseeker wrote: 25 Jul 2017 21:52
adrian2 wrote: 25 Jul 2017 18:34

Dividends to children were already taxed at a punitive rate for some two decades. The Liberals are now twisting the meanings of the word by showing examples with "children" age 25 or 27 to push their agenda. People 25 years of age may be the daughter or son of someone, but they are no longer children.
The government analysis found that dividends being paid to adult family members aged 18-21 exceeded amounts paid to adult family members aged 22-29. Why? Because income sprinkling was happening at higher rates when young adult family members had very low incomes, maximizing tax savings -- an indication the system was being gamed.
So what? Either a person is a child or is not. Don't start with the premise that income sprinkling (love this new term :evil: ) to children is bad, and in the next breath mention a 28 year old "child".
Why exactly are you fighting this losing battle?

Income splitting with your spouse who's presumably at home, NOT working and helping you raise your family makes a lot of sense.
Income splitting with your adult children who don't work for you and aren't acting as a parent in your home makes no sense at all and needs to go. My entire experience with this has been spoiled children getting free money from their physician parents and it acts 100% as a tax loophole.
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Re: Investment income in a CCPC

Post by izzy »

Nisser you may be right about income sprinkling to other family members being unfair on the face of it but it was NOT a loophole.There was nothing inadvertent about the provisions that allowed it which were not present in the original act In Alberta but were deliberately added by legislators in the other provinces as they adopted it's provisions.There was open discussion about it at the time in each province.There is NO other purpose in allowing family members to be shareholders.Can you think of even one?
The federal government passed a law allowing tax free savings accounts,the current government rolled back the limits but never suggested that use of the TFSA as intended was abusive.They did say that running a business under the guise of a TFSA was unacceptable since it is intended as a savings vehicle but that's a different matter.
Using a screwdriver to turn a screw is not abuse,it's designed for that purpose ,using it as chisel may work but IS abusive!
The language being used is (deliberately?) inaccurate and prejudicial.
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Re: Investment income in a CCPC

Post by adrian2 »

nisser wrote: 26 Jul 2017 01:37
adrian2 wrote: 25 Jul 2017 23:36 o what? Either a person is a child or is not. Don't start with the premise that income sprinkling (love this new term :evil: ) to children is bad, and in the next breath mention a 28 year old "child".
Why exactly are you fighting this losing battle?

Income splitting with your spouse who's presumably at home, NOT working and helping you raise your family makes a lot of sense.
Income splitting with your adult children who don't work for you and aren't acting as a parent in your home makes no sense at all and needs to go. My entire experience with this has been spoiled children getting free money from their physician parents and it acts 100% as a tax loophole.
Let me guess: you have a spouse, but have no (adult) children.

General comment, not directed at you, nisser:
If it's a provision in the tax code that one can use, it's good.
If it's something that others may use, but not applicable in your case, it's a loophole.

See for instance civil servants, having the most generous pension plans at work, claiming that RRSP's are something that rich people use, when in fact their pensions are quite similar in value with a maxed-up RRSP.
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Re: Investment income in a CCPC

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izzy wrote: 26 Jul 2017 08:16 Nisser you may be right about income sprinkling to other family members being unfair on the face of it but it was NOT a loophole.There was nothing inadvertent about the provisions that allowed it which were not present in the original act In Alberta but were deliberately added by legislators in the other provinces as they adopted it's provisions.There was open discussion about it at the time in each province.There is NO other purpose in allowing family members to be shareholders.Can you think of even one?
The federal government passed a law allowing tax free savings accounts,the current government rolled back the limits but never suggested that use of the TFSA as intended was abusive.They did say that running a business under the guise of a TFSA was unacceptable since it is intended as a savings vehicle but that's a different matter.
Using a screwdriver to turn a screw is not abuse,it's designed for that purpose ,using it as chisel may work but IS abusive!
The language being used is (deliberately?) inaccurate and prejudicial.

well said. as far as physicians go this is basically a fee cut in disguise. If Liberals had any integrity they would acknowledge that provinces knowingly provided this benefit during negotiations and that they will work with provinces to consider alternatives in the special instance of single payer system physicians.
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Re: Investment income in a CCPC

Post by DavidR »

tdiddy wrote: 26 Jul 2017 15:12 as far as physicians go this is basically a fee cut in disguise.
Only for physicians with someone to sprinkle income to... A single physician with no spouse or kids will pay the same tax as before - at least until the rules for Passive investments held in a private corp are finalized.
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Re: Investment income in a CCPC

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DavidR wrote: 26 Jul 2017 15:41
tdiddy wrote: 26 Jul 2017 15:12 as far as physicians go this is basically a fee cut in disguise.
Only for physicians with someone to sprinkle income to... A single physician with no spouse or kids will pay the same tax as before - at least until the rules for Passive investments held in a private corp are finalized.
Right those are the ones I'm worried about. I suspect the future value of my retirement portfolio will be slashed by about 20%
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Re: Investment income in a CCPC

Post by StuBee »

Correct me if I am wrong. Is it not true that passive CCPC income in all its forms is already taxed to a greater extent than if the same amount and types of income were declared on personal income? And is it not true that, upon withdrawal, adjustments are made in order to correct for this excessive taxation and bring it in line with the personal MTR corresponding to the withdrawal year? IOW's there is full integration between the CCPC taxation and personal taxation.

Presuming that income splitting is no longer possible there seems to remain one tax advantage: The deferral of tax on active income (even though the passive income produced by the active income is highly taxed...) At least the CCPC owner still has "tax otherwise owed" producing income. If the CCPC owner restricts his passive investments to companies that reinvest the majority (or all) of their earnings then interim taxes will be completely avoided (until a withdrawal is made from the CCPC).

If I am wrong about this advantage then for many professionals the purpose of a CCPC no longer exists.
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Re: Investment income in a CCPC

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StuBee wrote: 26 Jul 2017 17:34 Correct me if I am wrong. Is it not true that passive CCPC income in all its forms is already taxed to a greater extent than if the same amount and types of income were declared on personal income? And is it not true that, upon withdrawal, adjustments are made in order to correct for this excessive taxation and bring it in line with the personal MTR corresponding to the withdrawal year? IOW's there is full integration between the CCPC taxation and personal taxation.
Currently (as far as I know) after all tax is paid the CCPC comes out significantly ahead of un-registered personal in top tax bracket, long term, aside for foreign dividends. In fact for pure capital gains the CCPC typically beats even TFSA.
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Re: Investment income in a CCPC

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tdiddy wrote: 26 Jul 2017 19:21
StuBee wrote: 26 Jul 2017 17:34 Correct me if I am wrong. Is it not true that passive CCPC income in all its forms is already taxed to a greater extent than if the same amount and types of income were declared on personal income? And is it not true that, upon withdrawal, adjustments are made in order to correct for this excessive taxation and bring it in line with the personal MTR corresponding to the withdrawal year? IOW's there is full integration between the CCPC taxation and personal taxation.
Currently (as far as I know) after all tax is paid the CCPC comes out significantly ahead of un-registered personal in top tax bracket, long term, aside for foreign dividends. In fact for pure capital gains the CCPC typically beats even TFSA.
I think you're wrong (but I was never interested in the exact numbers for the top tax bracket, as I'm not there).

As per StuBee's quoted part, he's right as long as no dividends are paid out of the CCPC.
With enough dividends paid out, the integration works well enough, on a year by year basis.
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Re: Investment income in a CCPC

Post by nisser »

adrian2 wrote: 26 Jul 2017 13:06
nisser wrote: 26 Jul 2017 01:37
adrian2 wrote: 25 Jul 2017 23:36 o what? Either a person is a child or is not. Don't start with the premise that income sprinkling (love this new term :evil: ) to children is bad, and in the next breath mention a 28 year old "child".
Why exactly are you fighting this losing battle?

Income splitting with your spouse who's presumably at home, NOT working and helping you raise your family makes a lot of sense.
Income splitting with your adult children who don't work for you and aren't acting as a parent in your home makes no sense at all and needs to go. My entire experience with this has been spoiled children getting free money from their physician parents and it acts 100% as a tax loophole.
Let me guess: you have a spouse, but have no (adult) children.

General comment, not directed at you, nisser:
If it's a provision in the tax code that one can use, it's good.
If it's something that others may use, but not applicable in your case, it's a loophole.

See for instance civil servants, having the most generous pension plans at work, claiming that RRSP's are something that rich people use, when in fact their pensions are quite similar in value with a maxed-up RRSP.
I'm a proponent of everyone being able to income split with their spouse up to a certain arbitrary amount/minimum living wage. It just makes sense.

Your example with civil servants would only be analogous if it arbitrarily separated civil servants.
I.e. those working for the traffic department in a single story bungalow get a juicy pension but those suckers working for the health department in a duplex can fend for themselves!
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Re: Investment income in a CCPC

Post by slim »

Integration is supposed to make investment income in the CCPC end up identical as to what it would be if earned privately.
However in Alberta, after the NDP tax increases last year, my GIC interest is taxed at 54% in the CCPC. Although retired, I will start paying myself a salary this year to balance my interest income, so that I can lower it to the same that a person without a CCPC would pay.

With the massive handouts by Justin to his favourite people/causes, it is understandable that he is looking to steal what he can, and of course, a good target would be hard working professionals and Mom and Pop small businesses where people have worked hard and tried to save money so they have the opportunity to retire with some dignity.
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Re: Investment income in a CCPC

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nisser wrote: 26 Jul 2017 21:29 I'm a proponent of everyone being able to income split with their spouse up to a certain arbitrary amount/minimum living wage. It just makes sense.
Let me guess: you are part of the section of population where one has a spouse, but has no (adult) children.
nisser wrote: 26 Jul 2017 21:29 Your example with civil servants would only be analogous if it arbitrarily separated civil servants.
I.e. those working for the traffic department in a single story bungalow get a juicy pension but those suckers working for the health department in a duplex can fend for themselves!
You did not understand my analogy: many civil servants, as a group, think that RRSP's are a tax loophole for the rich, when themselves, as group, have generous pension plans as good as a maxed up RRSP.
In their thinking, having a DB pension growing tax deferred, is a good thing, "it just makes sense", while RRSP plans, allowing others to approximate their pension, are a loophole.

This is similar to you stating that everyone should able to income split with their spouse up to a certain arbitrary amount (you being part of the group who would benefit, by having your medical CCPC pay a salary to your spouse) but another CCPC paying dividends to adult family members who are shareholders "makes no sense at all and needs to go".
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Re: Investment income in a CCPC

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slim wrote: 26 Jul 2017 21:40 Integration is supposed to make investment income in the CCPC end up identical as to what it would be if earned privately.
I agree except that I would add that investment income compounding is better outside of a CCPC even if the outside account is unregistered. All forms of passive income within a CCPC are taxed at rates that are even higher than maximal private rates so that there is less to compound (though the difference is small). Of course much of this excessive tax will be returned to the individual when it is withdrawn from the CCPC (but it will not have compounded). The comparison favors even more the earning of investment income outside of the CCPC if the individual at the personal level is not in the highest bracket.

ISTM that the advantage is the compounding of the after tax active income. This income has not yet been fully taxed and remains within the CCPC. This "tax credit" is producing income for the owner (even though the income is punitively taxed...) The private individual does not have this "tax credit" working for him (or her). This advantage (and only this???) of the CCPC remains.
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Re: Investment income in a CCPC

Post by slim »

I agree, this seems to be the only advantage of a CCPC today.
Years ago there were some advantages, but those were changed.
The ability to make family members shareholders can too late for me, (except for the spouse, who I am currently making a shareholder)
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Re: Investment income in a CCPC

Post by tdiddy »

@StuBee, Adrian2
StuBee wrote: 26 Jul 2017 22:12
ISTM that the advantage is the compounding of the after tax active income. This income has not yet been fully taxed and remains within the CCPC. This "tax credit" is producing income for the owner (even though the income is punitively taxed...) The private individual does not have this "tax credit" working for him (or her). This advantage (and only this???) of the CCPC remains.
Exactly.
I am talking about investing active income taxed at small business rate (have not done calculations for >500K) and then paying out dividend down the road vs taking a salary and investing personally un reg. It works out in favor of CCPC (except for foreign dividends), this is what Liberals are trying to get rid of and we stand to lose. It is a substantial amount of money for one starting out trying to grow a retirement portfolio.

Take a look at Charts 7 and 8 in the MOF paper, also good blog post here http://www.thebluntbeancounter.com/2015 ... -with.html

If you are talking about $100K in CCPC vs $100K in unreg that is a different matter but I don't think anyone is suggesting funding CCPC from personal accounts and investing it?
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Re: Investment income in a CCPC

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StuBee wrote: 26 Jul 2017 22:12ISTM that the advantage is the compounding of the after tax active income. This income has not yet been fully taxed and remains within the CCPC. This "tax credit" is producing income for the owner (even though the income is punitively taxed...) The private individual does not have this "tax credit" working for him (or her). This advantage (and only this???) of the CCPC remains.
I reviewed the MOF document and it appears that it is the government's intention to also eliminate this advantage!! (Information difficult to follow and found from page 32 onwards...) At least the change is not retroactive... But going forward the usefulness of this structure to accumulate wealth independant of wealth produced from direct investment in the company is eliminated. ISTM that with both income splitting and tax deferal gone, the reason for being of most MD CCPC's is no more.
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Re: Investment income in a CCPC

Post by gobsmack »

Maybe in the end this will be a windfall for lawyers and accountants who will comb through the new legislation looking for new strategies to avoid paying tax. I imagine that probably nobody had anticipated the strategies used today when the current legislation was drafted. New strategies will be devised. It is a cat and mouse game.
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Re: Investment income in a CCPC

Post by izzy »

In all this talk about the advantages of retaining earnings in the corp and investing them passively one thing is never mentioned,i.e.the reduction in small business corporate rates over the past few years has been accompanied by a corresponding reduction in the dividend tax credit.To use an extreme example: if earnings were retained in the corp at a time when the small business tax rate was 20%,when the dividend is paid today it will be taxed as if it had been subject to today's small business rate of 10% with a correspondingly smaller tax credit on the dividend.Thus in many provinces the advantage has already been eliminated.
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Re: Investment income in a CCPC

Post by nisser »

adrian2 wrote: 26 Jul 2017 21:55
nisser wrote: 26 Jul 2017 21:29 I'm a proponent of everyone being able to income split with their spouse up to a certain arbitrary amount/minimum living wage. It just makes sense.
Let me guess: you are part of the section of population where one has a spouse, but has no (adult) children.
nisser wrote: 26 Jul 2017 21:29 Your example with civil servants would only be analogous if it arbitrarily separated civil servants.
I.e. those working for the traffic department in a single story bungalow get a juicy pension but those suckers working for the health department in a duplex can fend for themselves!
You did not understand my analogy: many civil servants, as a group, think that RRSP's are a tax loophole for the rich, when themselves, as group, have generous pension plans as good as a maxed up RRSP.
In their thinking, having a DB pension growing tax deferred, is a good thing, "it just makes sense", while RRSP plans, allowing others to approximate their pension, are a loophole.

This is similar to you stating that everyone should able to income split with their spouse up to a certain arbitrary amount (you being part of the group who would benefit, by having your medical CCPC pay a salary to your spouse) but another CCPC paying dividends to adult family members who are shareholders "makes no sense at all and needs to go".
Are you even reading my posts? I get no benefit from splitting with a spouse but if any couple out there has an unemployed stay at home partner, then it makes sense to equalize that with splitting.

You group all civil servants together but see no difficulty separating medical professionals based on an arbitrary caveat such as having children
Why should having children be an integral part of having a reasonable pay?

P.S. I think you're just arguing for the sake of arguing. Your initial argument was "shareholders" but when people pointed out how stupid that is, you go on another tangent.
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Re: Investment income in a CCPC

Post by adrian2 »

nisser wrote: 27 Jul 2017 12:10 P.S. I think you're just arguing for the sake of arguing. Your initial argument was "shareholders" but when people pointed out how stupid that is, you go on another tangent.
*plonk*
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Re: Investment income in a CCPC

Post by tdiddy »

nice to see some positive press on the issue

https://www.theglobeandmail.com/opinion ... e35843365/
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Re: Investment income in a CCPC

Post by DavidR »

Picard seems a bit confused. He writes:
The principal benefit of incorporation for a physician is to take advantage of the lifetime capital gains exemption...
followed by
Most physicians are hard-pressed to sell their practices when they retire; many can’t give them away
Does anyone know a physician who was able to sell their professional corp for a tax-free capital gain?
Seems to me the principal benefits are income-splitting (if the physician has family members with low incomes), and tax deferral - opportunity to build up a retirement fund
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Re: Investment income in a CCPC

Post by Koogie »

Not really sure why the issue is being addressed only in terms of doctors as well. Lots of us own CCPCs and aren't MDs.
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Re: Investment income in a CCPC

Post by nisser »

Koogie wrote: 01 Aug 2017 13:58 Not really sure why the issue is being addressed only in terms of doctors as well. Lots of us own CCPCs and aren't MDs.
Because we are employed by the government and have no means of compensating for the pay cut. I am unable to charge the patient more out of pocket.
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Re: Investment income in a CCPC

Post by Koogie »

Lots of us in business can't do that either. It's called competition.

Therefore it isn't a unique factor necessarily limiting the discussion to doctors.
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