Investment income in a CCPC

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Penquin007
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Re: Investment income in a CCPC

Post by Penquin007 »

Considering the current announced changes to the taxation of a CCPC, what would be the best strategy to save for retirement for a single income couple/family with a professional CCPC (ex. doctor + stay at home wife)? More specifically, how can you get the maximum income splitting once in retirement (assuming the stay at home parent will never go back to work) ?

- Maximise both TFSA
- Split the annual RRSP in two with a spousal RRSP contribution every year
- Use CCPC a saving vehicle up to the maximum allowed (50k/year of passive income)
- Then pay back the home mortage if not already done
- Then invest outside of the CCPC in taxable accounts without any possibility to do income splitting?
If the stay at home parent receive a small salary for administrative work for the CCPC, invest it all under the name of the stay at home parent, to allow some kind of income splitting from the investment returns?
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ClosetIndexer
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Re: Investment income in a CCPC

Post by ClosetIndexer »

You might also consider directing more of the spousal rrsp contributions to the stay at home partner. As the rules have currently been described, it is likely the earnings from the holdco, even below the 50k threshold, will not be splittable (unless you pass a reasonableness test, just as with the original active income that produced it).

Really need to wait and see how the final regulations shake out though.
Penquin007
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Re: Investment income in a CCPC

Post by Penquin007 »

Good point about increasing the spousal RRSP contribution.
I find single income families are really disadvantaged for retirement planning.
ig17
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Re: Investment income in a CCPC

Post by ig17 »

Penquin007 wrote: 03 Nov 2017 14:55 - Then invest outside of the CCPC in taxable accounts without any possibility to do income splitting?
Use spousal loan?

https://www.tewealth.com/income-splitti ... usal-loan/
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Re: Investment income in a CCPC

Post by izzy »

Interesting take on taxation of retained earnings
http://business.financialpost.com/opini ... e-noticing
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Re: Investment income in a CCPC

Post by couponstrip »

The Parliamentary Budget Officer released an analysis of the new CCPC tax changes.

Kim Moody's blog provides some analysis on the report:
Grandfathering Assumptions – Footnote 9 of the report states “We assume that second generation investment income from grandfathered assets would be subject to the new rules.” Really? Wow. If correct, then that would seem to be inconsistent with the Minister of Finance’s October 18, 2017 announcement.
That doesn't sound good.
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Re: Investment income in a CCPC

Post by izzy »

It is hard to describe how government can make the situation worse but the current uncertainty is likely to cause more perturbations in the economy than the eventual tax changes themselves.If I were a young doctor or other professional with portable qualifications contemplating setting up practice I would seriously be considering relocation at this stage even if these proposals never pass into law!
All the past efforts to attract well educated immigrants go for nought if you provide a disincentive for Canadian educated professionals to stay!Why would one want to put down roots where tax and compensation policy is so capricious if there is a viable alternative?
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tdiddy
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Re: Investment income in a CCPC

Post by tdiddy »

"Second generation" investment would refer to reinvesting dividends/interest I presume? Hard to see how future capital gains on initial investment, or drawing out of dividends could be considered second generation.
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Re: Investment income in a CCPC

Post by izzy »

One problem is that interest is normally taxed on an annual accrual basis so presumably some interest from a GIC could be considered secondary after the first year depending on your friendly CRA agent's interpretation and when the GIC rolls over all income would be secondary whereas perhaps bond interest would not? Sadly one can see possibilities :(
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Re: Investment income in a CCPC

Post by Doug »

As has been mentioned previously in this thread, foreign dividends get taxed at a higher rate in a CCPC than personally. That's because of withholding tax on foreign dividends. If it wasn't for the withholding tax, then taxation would be the same.

In a synthetic ETF, there are no taxable distributions. Also, there is no exposure to US estate tax. But what's most germane to this thread is that there is no exposure to withholding tax.

I'm not certain how much longer synthetic ETFs will exist in Canada. The tax advantages of corporate class funds disappeared, and my guess is that eventually something similar will happen to synthetic ETFs in Canada.

However, synthetic ETFs do exist overseas. Even if Canadian domiciled synthetic ETFs disappeared, I suspect that foreign domiciled synthetic ETFs would continue. And I wouldn't be surprised if the CRA eventually expects the owner of such an ETF to pay the same tax as an owner of a physical ETF does on distributions. However, I doubt that the CRA will care whether the owner of a foreign domiciled synthetic ETF doesn't pay any withholding tax.

Now there are drawbacks to synthetic ETFs, such as counterparty risk. And taxes are not the only cost of an investor. Horizons Canada's NASDAQ synthetic ETF has a yearly cost of 0.625%.

Nevertheless, synthetic ETFs are one option to deal with foreign dividends in a CCPC.
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Re: Investment income in a CCPC

Post by scorpionman »

Do you mean the foreign dividend tax credit in a CCPC is less than the same credit personally?
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Re: Investment income in a CCPC

Post by ClosetIndexer »

scorpionman wrote: 25 Nov 2017 17:02 Do you mean the foreign dividend tax credit in a CCPC is less than the same credit personally?
IIRC it's because of how it interacts with the RDTOH.
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Re: Investment income in a CCPC

Post by tdiddy »

Doug brings up another one of the many uncertainties with this issue. I'm heavily invested in Horizon products within CCPC. If they become disallowed in two years time, and I have to sell, that might mean those amounts sold might no longer be in the 'grandfathered' pool of my CCPC investments. However, the physical international ETFs are a drag on portfolio and better held personally.

My accountant is now advising me to utilize the conversion to capital gains strategy now that is is (temporarily?) clearly legal. However, if the grandfathered amounts are allowed to grow in synthetic ETF which will still have access to CDA (?) for next 15 years I'm better off keeping them in CCPC by my math.

How are we supposed to plan in this environment? Either way seems like a gamble
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Re: Investment income in a CCPC

Post by kero »

We invested in real estate in a CCPC bought with shareholder loan money rather than income that benefited from "low" corporate tax rate. But it does have large unrealized gain on it already. I am confused from all the different literature and my accountant is not much better than me. When I sell this property in the future:
- is the CG considered part of "income" that will be grandfathered, or only the rental income would?
- Would I lose the CDA on half of this gain? What about the RDTOH?
- at this point if we invest in more real estate in this CCPC, earning meager rental income but with more CG potential, it's a bad idea right?

Thanks in advance
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Re: Investment income in a CCPC

Post by DavidR »

kero wrote: 30 Nov 2017 12:59 - is the CG considered part of "income" that will be grandfathered, or only the rental income would?
- Would I lose the CDA on half of this gain? What about the RDTOH?
These are good questions, kero, but I don't believe there are any reliable answers yet. Finance dept has promised to say more about their plans in the spring 2018 budget.
It is expected that they will provide some transitional rules, but no certainty yet.
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Re: Investment income in a CCPC

Post by bluebumbler »

Thanks to everyone who has contributed to this forum. Between here and the Blunt Bean Counter I have learned quite a bit.

I have a question about filling out schedule 89 (CDA account balance verification), which I am filing in conjunction with a T2054 (Election for capital Dividend). I sold some stock a couple of days ago, and will be including it on schedule 89. Is there any 'proof' I need to present, like a trade confirmation? I presume the CRA will not have this info from my brokerage for several months?
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Re: Investment income in a CCPC

Post by silverbug »

Shareholder loan (from CCPC to personal) was a good way to move some funds over to the personal accounts. Used that and made the push to liquidate as much as possible from our CCPC this fall, mortgage paid off and moved the difference to RRSP , the large deduction lowers the tax owing on the dividends.

I still have some dead money in the CCPC in preferred shares, for now it's streaming out some monthly income. We might have one last opportunity to take another dividend in the new year, (this time would load the TFSAs) . I'd be very surprised if the libs would risk the political fallout from ahead if they proceed with any legislation before year end.

Anyone else doing some shuffling/juggling with their corps before this comes to a head? Having this uncertainty spill and no legislation on the table as of January will be a gift and a small piece of good news.
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Re: Investment income in a CCPC

Post by DavidR »

bluebumbler wrote: 02 Dec 2017 20:47 Thanks to everyone who has contributed to this forum. Between here and the Blunt Bean Counter I have learned quite a bit.

I have a question about filling out schedule 89 (CDA account balance verification), which I am filing in conjunction with a T2054 (Election for capital Dividend). I sold some stock a couple of days ago, and will be including it on schedule 89. Is there any 'proof' I need to present, like a trade confirmation? I presume the CRA will not have this info from my brokerage for several months?
No proof needs to be attached to the CDA filing. CRA will ask for it later if they want it - but is not their normal practice to ask.
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Re: Investment income in a CCPC

Post by izzy »

DavidR wrote: 03 Dec 2017 19:19
bluebumbler wrote: 02 Dec 2017 20:47 Thanks to everyone who has contributed to this forum. Between here and the Blunt Bean Counter I have learned quite a bit.

I have a question about filling out schedule 89 (CDA account balance verification), which I am filing in conjunction with a T2054 (Election for capital Dividend). I sold some stock a couple of days ago, and will be including it on schedule 89. Is there any 'proof' I need to present, like a trade confirmation? I presume the CRA will not have this info from my brokerage for several months?
No proof needs to be attached to the CDA filing. CRA will ask for it later if they want it - but is not their normal practice to ask.
Thanks for that info DavidR
I sold some mutual funds in my holding company (formerly my professional corporation) a few days ago and had been wondering how to document the resulting capital gain and pay out a capital dividend while it is still possible since the documentation is unlikely to be available until early next year.
Also is there a superficial gain rule like the superficial loss rule to be aware of if I want to buy back the same fund?
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bluebumbler
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Re: Investment income in a CCPC

Post by bluebumbler »

DavidR wrote: 03 Dec 2017 19:19 No proof needs to be attached to the CDA filing. CRA will ask for it later if they want it - but is not their normal practice to ask.
Thanks so much! Figured I get this money over into my personal investment account, given the future taxation of passive income inside a CCPC is so unclear.
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Re: Investment income in a CCPC

Post by kero »

Man should I sell this real estate property before 12/31 this year because next year it may not be 100% taxable rather than 50% or with no RDTOH even if I dividend it out?
DavidR wrote: 02 Dec 2017 10:09
kero wrote: 30 Nov 2017 12:59 - is the CG considered part of "income" that will be grandfathered, or only the rental income would?
- Would I lose the CDA on half of this gain? What about the RDTOH?
These are good questions, kero, but I don't believe there are any reliable answers yet. Finance dept has promised to say more about their plans in the spring 2018 budget.
It is expected that they will provide some transitional rules, but no certainty yet.
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Re: Investment income in a CCPC

Post by Koogie »

silverbug wrote: 02 Dec 2017 22:16 Shareholder loan (from CCPC to personal) was a good way to move some funds over to the personal accounts. Used that and made the push to liquidate as much as possible from our CCPC this fall, mortgage paid off and moved the difference to RRSP , the large deduction lowers the tax owing on the dividends.
I still have some dead money in the CCPC in preferred shares, for now it's streaming out some monthly income. We might have one last opportunity to take another dividend in the new year, (this time would load the TFSAs) . I'd be very surprised if the libs would risk the political fallout from ahead if they proceed with any legislation before year end. Anyone else doing some shuffling/juggling with their corps before this comes to a head? Having this uncertainty spill and no legislation on the table as of January will be a gift and a small piece of good news.
I did precisely the same manoeuvre a couple of years ago, using RRSP deductions to cover dividend taxes. Unfortunately, I have run out of RRSP room to do it again. Also, unfortunately, I still have about 2/3rds of our invested assets in the CCPC so getting them out in a hurry isn't going to happen. I can only hope Morneau stands by his "grandfathering" provisions.
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Re: Investment income in a CCPC

Post by silverbug »

Do these tax changes make corporate class mutual funds a more legitimate option for CCPC investments?

I've always taken the advice of the gurus who suggest going with low cost ETFs and did well until now, perhaps I'm better off parking long term investments in a corporate class shelter where I can set it and forget it for a couple of decades and hope the tax climate changes?
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Re: Investment income in a CCPC

Post by silverbug »

Koogie wrote: 04 Dec 2017 09:26 I did precisely the same manoeuvre a couple of years ago, using RRSP deductions to cover dividend taxes. Unfortunately, I have run out of RRSP room to do it again. Also, unfortunately, I still have about 2/3rds of our invested assets in the CCPC so getting them out in a hurry isn't going to happen. I can only hope Morneau stands by his "grandfathering" provisions.
That's the first I"ve heard of someone else doing this, people in finance were telling me to wait and not make hasty decisions but I did it anyway. I was scrambling between the consult period announcements and october 1st as I didn't know what was coming , my accounts look insane (took about 300k out in a series of dividend payouts to the spouse and I), then shuffled them over to the bank that has my mortgage and made the RRSP contribution, came down to the last 48 hours and I believe my last transaction was right on October 1st ...can at least breathe a sigh of relief that the mortgage is out of the way. I was like you and planned around the CCPC for kids school and long term/retirement savings, it sucks to sacrifice long term investment to pay off a 2.5% mortgage, ah well, time to join the middle class...
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Re: Investment income in a CCPC

Post by kcowan »

silverbug wrote: 04 Dec 2017 10:31ah well, time to join the middle class...
Yup the Morneau/Trudeau strategy will drive business owners into the middle class. Maybe they can buy an IPP from Morneau-Chapelle?
For the fun of it...Keith
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