Investment income in a CCPC

Income tax policy, rules, problems, strategy and software. Property and consumption taxes too.
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CROCKD
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Re: Investment income in a CCPC

Post by CROCKD »

I saw an interview with the Conservative Party's 'Liar in Chief' Pierre Poilievre on this subject. Obvious during the last election he had already invented 'alternative truths' before Trump and his crowd in the US had even thought of it.
Perhaps those who are vehemently opposed to the tax proposal in any form should listen to this.
http://www.cbc.ca/player/play/1072834115945
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Re: Investment income in a CCPC

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Wow. talk about the CBC poking the private sector in the eye again.
Its tough listening to the twisting of reality by the " left wing experts" at CBC. I guess thats why so many people feel so angry about the CBC.
Instead, try reading a good article by Bill Morneaus chief actuarial at Morneau Sheppelle.
Fred Vitesse actually knows what he is talking about.
https://beta.theglobeandmail.com/report ... ndmail.com&
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Re: Investment income in a CCPC

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So Conservatives are "Liars" and small business owners "don't pay their fair share" and therefore they are tax cheats.
I guess the only virtuous people left in this country must be Liberal voters and government employees.


"""Virtue signalling" is the conspicuous expression of moral values done primarily with the intent of enhancing standing within a social group.In common parlance the term has become more commonly used as a pejorative characterization by commentators to criticize what they regard as empty, or superficial support of certain political views, and also used within groups to criticize their own members for valuing outward appearance over substantive action.""
tdiddy
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Re: Investment income in a CCPC

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So seems like can keep about 2 million passively invested before new changes take effect? $50,000/year passive income + an amount of the principle I would assume.

That's in addition to whatever you already have as of July/now/near future

http://www.bnn.ca/morneau-caps-passive- ... s-1.887549
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Re: Investment income in a CCPC

Post by qasimodo »

How are they going to differentiate between "Pre money" and "Post money" as well as the offspring of "Pre money" and "Post money"?
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Re: Investment income in a CCPC

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qasimodo wrote: 18 Oct 2017 12:17 How are they going to differentiate between "Pre money" and "Post money" as well as the offspring of "Pre money" and "Post money"?
No idea. But apparently they have done similar things in the past, I'll defer to any accountant on here on want to chime in on that. However, given the political position they are in now I'd say they can't mess around with that.

I'm still not pleased at all with how Liberals have gone about this whole issue, but this outcome looks like it will at least partially mitigate things for many.

I would assume new strategy would now be to grow CCPC savings, then transition it into bond portion of portfolio in retirement holding tax advantaged bond fund.
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Re: Investment income in a CCPC

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Here is what is known so far.. straight out of one end of the horse...

Targeted Tax Fairness Measures Will Protect Middle Class Small Business Owners
http://www.fin.gc.ca/n17/17-099-eng.asp

In further developing these measures, the Government will ensure that:

- All past investments and the income earned from those investments will be protected;
- Businesses can continue to save for contingencies or future investments in growth;
- A $50,000 threshold on passive income in a year (equivalent to $1 million in savings, based on a nominal 5-per-cent rate of return) – an amount that is exceeded by only about 3 per cent of corporations – is available to provide more flexibility for business owners to hold savings for multiple purposes, including savings that can later be used for personal benefits such as sick-leave, maternity or parental leave, or retirement;
- and Incentives are in place so that Canada’s venture capital and angel investors can continue to invest in the next generation of Canadian innovation.
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Re: Investment income in a CCPC

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or retirement;
Why are these selected few allowed to save for retirement this way? Why are they not restricted to the 18% like the rest of us working stiffs?

Is because it can't be measured or quantified?
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Re: Investment income in a CCPC

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As the civil servants with massive DB pensions always say: feel free to do it yourself.
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Re: Investment income in a CCPC

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Today's announcements certainly are more promising, but raise even more questions:

a) wonder what the effective date of "past, exempt from new measures, investments is" ? (Jan 2018, July 2017, something else)

b) first $50K of new passive investments income is taxed at low rate. Great, what low rate, Fed and provincial small business rate ? No more Part IV tax on first 50k of dividends?

c) Are realized capital gains investment income. part of the $50k cap ? Does the CDA still exist ?

This striptease of releasing tax measures without any hint as to the real underlying changes to the ITA is not helping. The devil. as they say, is in the details.
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Re: Investment income in a CCPC

Post by ClosetIndexer »

ColdCanuck wrote: 18 Oct 2017 14:12 Today's announcements certainly are more promising, but raise even more questions:

a) wonder what the effective date of "past, exempt from new measures, investments is" ? (Jan 2018, July 2017, something else)

b) first $50K of new passive investments income is taxed at low rate. Great, what low rate, Fed and provincial small business rate ? No more Part IV tax on first 50k of dividends?

c) Are realized capital gains investment income. part of the $50k cap ? Does the CDA still exist ?

This striptease of releasing tax measures without any hint as to the real underlying changes to the ITA is not helping. The devil. as they say, is in the details.
My thoughts exactly. These are all obvious questions, so it would be nice if the government would anticipate them and provide details. Otherwise you end up with the wild speculation we've been seeing since July. Instead, it appears their goal is to just deflect the public's attention with a hand-waving, "Don't worry, this only affects rich people..."
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Re: Investment income in a CCPC

Post by t705cda »

The backgrounder says:

Including a passive income threshold of $50,0001 per year for future, go-forward investments (equivalent to $1 million in savings based on a nominal 5 per cent rate of return) to provide more flexibility for business owners to hold savings for multiple purposes, including savings that can later be used for personal benefits such as sick leave, parental leave, or retirement. There will be no tax increase on investment income below this threshold

I recall the July consultation paper talking about RDTOH. If that is eliminated for dividends issued above this threshold then the overall tax rate to the shareholder willbe very high.
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Re: Investment income in a CCPC

Post by slim »

OK
To me this reads very bad.
going forward we can only have 50,000 in passive income? which is roughly what you'd get from 1000,000 in savings?

So what if you've taken little salary over the years and you are now retired, you've spent countless hours investing wisely and have a savings of say 6,000,000 in your CCPC?

Would you have to remove 5,000,000 in order to bring down your future passive income to 50,000 per year?

How do you do that? Cash all your stocks, realize all your capital gain? pay yourself huge non eligible dividends. You would have to send an enormous cheque to the government, then of course you would have substantially less to invest personally for your future retirement cash flow.

Tell me It is just poorly written and doesn't mean this :evil:

It would like telling civil servant, your pension is now a maximum of 50,000 and here is the cash value of the rest of your pension, but give us half for taxes.
Last edited by slim on 18 Oct 2017 19:17, edited 1 time in total.
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Re: Investment income in a CCPC

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slim wrote: 18 Oct 2017 18:22 OK
To me this reads very bad.
going forward we can only have 50,000 in passive income? which is roughly what you'd get from 1000,000 in savings?

So what if you've taken little salary over the years and you are now retired, you've spent countless hours investing wisely and have a savings of say 6,000,000 in your CCPC?

Would you have to remove 5,000,000 in order to bring down your future passive income to 50,000 per year?

How do you do that? Cash all your stocks, realize all your capital gain? pay yourself huge non eligible dividends. You would have to send an enormous cheque to the government, then of course you would have substantially less to invest personally for your future retirement cash flow.

Tell me It is just poorly written and doesn't mean this :evil:

It would like telling civil servant, your pension is now a maximum of 50,000 and here is the cash value of the rest of your pension, but give us half for taxes.
They're repeatedly said that existing investments will be grandfathered, so no, I don't think that's what it means.

What I'm wondering is, will we get 50k over and above anything from existing investments? I'm guessing not.
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Re: Investment income in a CCPC

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Today "the dance of the seven veils" continues...........................!!
When the magician shows what is in his hands one should wonder what he has up his sleeve!!
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Re: Investment income in a CCPC

Post by nisser »

I'm still confused what the 50,000 limit is for. Is that for dividend/interest only? What happens if I sell an investment in a CCPC and realize a capital gain that puts you well over that?

This "cap" will then be easily hit within 5-15 years for most diligent people that are actually saving for their retirement. At that point a 50k limit is nothing. I'd rather have the government pension and benefits. Where do I sign up for that instead? :)
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Re: Investment income in a CCPC

Post by tdiddy »

My guess is that passive income includes realized capital gains, interest, and dividends. But the handling of the capital gains bit will be interesting.

Remember that depending on rate of return, a significant portion of the portfolio is principle. My thinking is that makes the size of the portfolio closer to 2 million than 1 million if in retirement/draw down mode you'd be taking out possibly up to 100K/year, half principle half passive investment income. The math would get complicated quickly over the course of retirement. That is my interpretation on limited info so far atleast. If they screw us over with handling of capital gains and ACB issues than 50K is truly outrageous.


Also interesting that if you don't need CCPC for business purposes, then 50K/year (depending on above issues of course) is barely breaking even with long term accounting costs I'd guess -- probably not a coincidence.
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Re: Investment income in a CCPC

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Well the briefing and question period are giving him the grilling that he so richly deserves. They definitely want his scalp.
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Re: Investment income in a CCPC

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Besides the technical questions already raised especially in regards to CDA being available and the treatment of grandfathered vs new investments...

Unintended consequences abound. This will impact way more than the 3% of companies targeted. What happens if I have only 500K invested and realize capital gains of 25000 one year, and 75000 the next? On average that's 50K, but I'm going to get soaked in that 75K year aren't I? What happens if I want to invest that 75K in an active business but because I'm over the threshold, I get more heavily taxed and can no longer make the investment? At the very least I have to pay more for an accountant to figure all this crap out.

It's the small companies under or near the threshold which are going to get hurt the most. They will be incentivized to stay small and take low risk/reward investments since they can least afford to pop above the threshold and pay the higher tax for the same risk taken. They will waste precious energy and money on tax planning representing a higher percentage of their investment revenue. This is a confiscatory tax that says if you are going to take more risk and manage to earn an accordingly higher profit, we are going to tax you significantly more.

Small companies will stay small, and bigger companies will stay big - but all may change their investment mix to lower yielding assets, reducing overall investment tax revenue, or increase charitable donations (better to give the income away than contribute 73% (perhaps) tax to the government). That "dead money" that Morneau was complaining about will become even more dead, and complexity of any rules to implement this and mitigate unintended consequences are going to ruin many companies.

Sad times for all Canadians.
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Re: Investment income in a CCPC

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varus50 wrote: 20 Oct 2017 11:59 It's the small companies under or near the threshold which are going to get hurt the most. They will be incentivized to stay small and take low risk/reward investments since they can least afford to pop above the threshold and pay the higher tax for the same risk taken. They will waste precious energy and money on tax planning representing a higher percentage of their investment revenue. This is a confiscatory tax that says if you are going to take more risk and manage to earn an accordingly higher profit, we are going to tax you significantly more.
Small companies will stay small, and bigger companies will stay big - but all may change their investment mix to lower yielding assets, reducing overall investment tax revenue, or increase charitable donations (better to give the income away than contribute 73% (perhaps) tax to the government). That "dead money" that Morneau was complaining about will become even more dead, and complexity of any rules to implement this and mitigate unintended consequences are going to ruin many companies.
Sad times for all Canadians.
Along the lines of what Mintz says in his column on the subject in the Financial Post.
http://business.financialpost.com/opini ... tax-system

""Taking into account the new surplus-stripping rules, small businesses with less than $10 million in assets would be more heavily taxed compared to now (45.4 versus 42.2 per cent). Larger small businesses will be taxed just above 50 per cent. So the tax wall gets higher: a firm doubling in size to $20 million in assets will see its effective tax rate on capital rise from 45.4 to 50.9 per cent.

What use does any of that accomplish? Some small businesses will get taxed a bit less while others will be more heavily taxed, and we have a plan that discourages growth. Is this the tax reform we want? Less growth and a rising tax burden on businesses of different size? I doubt it.""
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Re: Investment income in a CCPC

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I predict that Trudeau will cut Morneau lose if he does not pull out a reasonable compromise that I do not yet see. It is ridiculous to contemplate massive changes on such short notice. 21000 submissions? There is lots of fodder but they are not considering it. They are trying to take shortcuts.
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Re: Investment income in a CCPC

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...more info on MOF site

http://www.fin.gc.ca/n17/data/17-099_1-eng.asp#_ftnref1

still quite vague on capital gains; will these be grandfathered? any thoughts? Looks like we won't know for sure until March. That's not a reasonable period of uncertainty imho, this government is frankly terrible.
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Re: Investment income in a CCPC

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I predict Victoria will get the shaft but Mohamed will do OK. All based on first names.
I don't intend to offend anyone, that part is just a bonus.

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Re: Investment income in a CCPC

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tdiddy wrote: 23 Oct 2017 12:52 ...more info on MOF site

http://www.fin.gc.ca/n17/data/17-099_1-eng.asp#_ftnref1

still quite vague on capital gains; will these be grandfathered? any thoughts? Looks like we won't know for sure until March. That's not a reasonable period of uncertainty imho, this government is frankly terrible.
I don't understand that graph. 84.5% of CCPCs have ZERO passive income? How is that possible
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Re: Investment income in a CCPC

Post by ClosetIndexer »

nisser wrote: 23 Oct 2017 20:37
tdiddy wrote: 23 Oct 2017 12:52 ...more info on MOF site

http://www.fin.gc.ca/n17/data/17-099_1-eng.asp#_ftnref1

still quite vague on capital gains; will these be grandfathered? any thoughts? Looks like we won't know for sure until March. That's not a reasonable period of uncertainty imho, this government is frankly terrible.
I don't understand that graph. 84.5% of CCPCs have ZERO passive income? How is that possible
Not too surprising to me. Many probably aren't used at all. Most of the rest are small, active, "main street" businesses - restaurants, etc. Any long-term profits are probably drawn out by the owners. Finally, in cases where there are significant profits, most people will have a separate holdco. I own three CCPCs, of which only one (the holdco) has any passive income.
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