Investment income in a CCPC

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izzy
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Re: Investment income in a CCPC

Post by izzy »

Koogie wrote: 01 Aug 2017 14:38 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.
The big difference is that the main competition for doctors comes from the US and most young Canadian doctors are dual qualified and would have little trouble qualification wise in relocating south.You wouldn't expect a company that was having a hard time making a profit in its current location to stay there if they knew that relocating would make the difference.Of course as far as government is concerned they can substitute nurses for doctors anyway, at less expense :roll:
Whether the Canadian public will accept "Nursicare" or "Para-Medicare" is another issue of course.If you train them adequately to substitute for doctors they are likely to want to be treated as doctors.Those of us who are "over the hill" will have little say anyway.
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Re: Investment income in a CCPC

Post by Koogie »

All very well and good but not really sure how that addresses the point I was making that these changes in legislation are going to affect a helluva lot more people than just doctors.
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Re: Investment income in a CCPC

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Koogie wrote: 01 Aug 2017 18:01 All very well and good but not really sure how that addresses the point I was making that these changes in legislation are going to affect a helluva lot more people than just doctors.
It certainly would have affected me if I hadn't wound down my CCPC last year, and I'm not a medical doctor.

Perhaps the impact on doctors is bigger than on other occupations. For example, the market for lawyers is reasonably competitive, and prices tend to reflect costs. If our costs go up, we all increase our prices/rates to compensate (more or less). This was very clear for Ontario lawyers involved in real estate transactions, when malpractice insurance started charging an extra $50 premium per transaction and, of course this was passed on to clients, to the penny. By contrast, doctors charge rates that are negotiated with provincial governments, by and large. Whether doctors will be able to pass on this increase in their costs will depend on their bargaining power viz-a-viz the governments. (This is technically known as a bilateral monopoly. I hate those.)

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Re: Investment income in a CCPC

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Koogie wrote: 01 Aug 2017 18:01 All very well and good but not really sure how that addresses the point I was making that these changes in legislation are going to affect a helluva lot more people than just doctors.
there have been articles about how it affects all small businesses in FP/G&M

I think this article was needed firstly because physicians in Ontario remain without a contract and are in the midst of a prolonged labour dispute with the Government, which is of interest to many due to the nature of the profession/health care system etc; secondly because these very corp benefits were dangled to these physicians in lieu of fee increase in the past so the language from Morneau/Trudeau from a physicians perspective has been very problematic.
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Re: Investment income in a CCPC

Post by DmDave »

ghariton wrote: 01 Aug 2017 18:20
Koogie wrote: 01 Aug 2017 18:01 All very well and good but not really sure how that addresses the point I was making that these changes in legislation are going to affect a helluva lot more people than just doctors.
It certainly would have affected me if I hadn't wound down my CCPC last year, and I'm not a medical doctor.

Perhaps the impact on doctors is bigger than on other occupations. For example, the market for lawyers is reasonably competitive, and prices tend to reflect costs. If our costs go up, we all increase our prices/rates to compensate (more or less). This was very clear for Ontario lawyers involved in real estate transactions, when malpractice insurance started charging an extra $50 premium per transaction and, of course this was passed on to clients, to the penny. By contrast, doctors charge rates that are negotiated with provincial governments, by and large. Whether doctors will be able to pass on this increase in their costs will depend on their bargaining power viz-a-viz the governments. (This is technically known as a bilateral monopoly. I hate those.)

George
We will probably see more job actions done by physicians to tell the T2 gang not to mess with their CCPC's.
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Re: Investment income in a CCPC

Post by tdiddy »

Joined a webinar from my accounting firm today.

They strongly speculate that "grandfathering" existing passive investments relates to ensuring existing capital gains/dividends on existing passive investments are taxed according to the old rules. They do not suspect that preexisting passive funds will somehow be treated differently than new retained earnings in terms of future investment income they should generate, as this would be too complex for CRA to process.

If true, this would discount any benefit to putting corporate LOC/loan towards current investment hoping it would be grandfathered.

It would be a further blow to those of us with a long term time horizon; and even worse to anyone who has been following a dividend only approach over several years as they would have little RRSP contribution space.
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Re: Investment income in a CCPC

Post by DmDave »

Since CRA and T2 gang are going after passive dividend, that makes capital gains and swap based ETF's much more enticing, such as HXS, HBB or HXT.

One way for me to stick it to the man is to invest for cap gain for the next 20 years. By then hopefully we will be in better situation.
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Re: Investment income in a CCPC

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Is a 93% Tax Rate Fair to Canadian Small Business Owners?
Some may suspect that we are exaggerating the impact of the Fair Tax Plan. To them, we would ask if a tax system that can confiscate the hard-earned income of a business owner at a tax rate of over 93% is fair? This could be the result if the Fair Tax Plan is implemented.

For more detail as to how the 93% tax rate has been calculated, we encourage you to review the example in Annex I to this article. We also invite you to read through the discussion that suggests that the Fair Tax Plan may jeopardize the ability for private business owners to sell their shares and use their capital gains exemption found in Annex II to this article.

Conclusions

The individual proposals in the Fair Tax Plan are extremely complicated and their complexity increases as the interactions between the proposals and the rest of the Income Tax Act, are considered. The Department of Finance has invited Canadians to provide comments and allowed only 75 days to do so. Given that these proposals collectively are perhaps the most transformational changes in over 50 years, this amount of time to respond is wholly inadequate.

Regardless of the time provided for comments, as illustrated in the examples in the Annexes to this article, we believe that there is no way to work with the Fair Tax Plan and that it should simply be abandoned before any of it is enacted into law.
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Re: Investment income in a CCPC

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Imagine a situation involving Marie, the owner of an incorporated small business that provides landscaping services (“Gardenco”), who took legitimate steps to allow her only child, Justice, who is not active in the business carried on by Gardenco to acquire nominal value common shares of Gardenco.
Uh... And why did she do this again? I thought that the whole point of the proposed changes is to remove the benefits for these kinds of structures.
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Re: Investment income in a CCPC

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The question is what is deemed fair?
Someone who works eighty hours a week and who's spouse stays home with the kids (old fashioned I know) is taxed more heavily than a family in which both spouses work forty hours a week even if the total family income is identical.Someone who works eighty hours a week for twenty years and then has to retire is taxed more heavily than someone who works forty hours a week for forty years.Incorporation is one means to even up the tax burden in these situations but that is deemed abusive?No wonder it is so difficult to recruit doctors for small rural towns where these hours of work are required!
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Re: Investment income in a CCPC

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izzy wrote: 10 Aug 2017 13:15 No wonder it is so difficult to recruit doctors for small rural towns where these hours of work are required!
The complaints here from doctors about changes to corporate taxation are getting tiresome, frankly.
I have no opinion on whether doctors are underpaid, overpaid or paid just right. What I do know is that trying to pay provincially employed doctors more by giving them access to a special federal tax reduction scheme is crazy. It's crazy for its needless complexity and it's crazy for appearing to substitute federal tax savings for what should be provincially paid income.
The provincial medical associations and provincial health ministries that signed on for this as a way of putting more money in doctors' pockets (if that is indeed the case; I am simply accepting the background I have read in this thread from doctors) made a choice out of expediency. It is now haunting them.
If you feel doctors should be paid more, then by all means make the case. Negotiate hard with your province. Ask for a dedicated rural doctor tax deduction. Enlist the public in your cause.
But please don't suggest that a complicated corporate tax dodge is a sensible way of accomplishing this.
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Re: Investment income in a CCPC

Post by ClosetIndexer »

To (biased) me, this seems more unfair to classical entrepreneurs than to professionals. When you start and run a small business, you take on quite a bit of risk. I have very little guarantee that my business will still be earning enough to support me in a few years; it could be about the same as it is now, it could be more, and it could be less. For that reason, I've always tried to live below my means and retain additional earnings in a holdco, so that if the business dries up, I'll have the savings to fall back on. The 'job' of a business owner generally involves a bunch of semi-related tasks; if the business dries up, it would be difficult to just go find a similar position.

That seems like a difference worth noting. Entrepreneurs start businesses that employ people and benefit the economy. They take on a greater amount of risk than most salaried employees in doing so. Treating their business profits - even if not drawn personally - as equivalent to the same amount of salary doesn't seem entirely reasonable.

Now, I do think some of these changes make sense, and in other cases I agree that the issues are real, but feel the proposed changes overreach. I won't get into the specifics there. But I just wanted to make the point that, for example, a small business owner whose business earned $180k last year is in a very different situation than, say, a computer programmer who made the same working for Amazon.
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Re: Investment income in a CCPC

Post by Koogie »

ClosetIndexer wrote: 10 Aug 2017 15:51 To (biased) me, this seems more unfair to classical entrepreneurs than to professionals. When you start and run a small business, you take on quite a bit of risk. I have very little guarantee that my business will still be earning enough to support me in a few years; it could be about the same as it is now, it could be more, and it could be less. For that reason, I've always tried to live below my means and retain additional earnings in a holdco, so that if the business dries up, I'll have the savings to fall back on. The 'job' of a business owner generally involves a bunch of semi-related tasks; if the business dries up, it would be difficult to just go find a similar position.
That seems like a difference worth noting. Entrepreneurs start businesses that employ people and benefit the economy. They take on a greater amount of risk than most salaried employees in doing so. Treating their business profits - even if not drawn personally - as equivalent to the same amount of salary doesn't seem entirely reasonable.
Now, I do think some of these changes make sense, and in other cases I agree that the issues are real, but feel the proposed changes overreach. I won't get into the specifics there. But I just wanted to make the point that, for example, a small business owner whose business earned $180k last year is in a very different situation than, say, a computer programmer who made the same working for Amazon.
+1

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Re: Investment income in a CCPC

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fireseeker wrote: 10 Aug 2017 15:12
izzy wrote: 10 Aug 2017 13:15 No wonder it is so difficult to recruit doctors for small rural towns where these hours of work are required!
The complaints here from doctors about changes to corporate taxation are getting tiresome, frankly.
I have no opinion on whether doctors are underpaid, overpaid or paid just right. What I do know is that trying to pay provincially employed doctors more by giving them access to a special federal tax reduction scheme is crazy. It's crazy for its needless complexity and it's crazy for appearing to substitute federal tax savings for what should be provincially paid income.
The provincial medical associations and provincial health ministries that signed on for this as a way of putting more money in doctors' pockets (if that is indeed the case; I am simply accepting the background I have read in this thread from doctors) made a choice out of expediency. It is now haunting them.
If you feel doctors should be paid more, then by all means make the case. Negotiate hard with your province. Ask for a dedicated rural doctor tax deduction. Enlist the public in your cause.
But please don't suggest that a complicated corporate tax dodge is a sensible way of accomplishing this.
Yes you have a point that it clearly would have been better to negotiate a fee increase retrospectively. And I am sure that the next round of negotiations between physicians and provinces will be very heated. There are many aspects of our tax and remuneration system that are complicated, but that does not mean changing laws that have been in place for decades that will massively punitively affect certain groups is somehow right or justified.

Allowing CCPC to save passively to make up for diminished RRSP contribution room during training while corporate employees were plugging along straight out of their B.A. makes good sense to me. Allowing small business owners the flexibility to save passively within their corporation for retirement or otherwise, due to the increased risks associated with their business vs employee also makes sense to me.

Deciding to not penalize stock options for CEOs and other execs while doing this to professionals does not make sense to me (They easily could have introduced a capped limit to help startups)

You must realize anyone losing 30% of their ability to save for retirement is going to complain. I would like to see what the reaction would be from unions if JT announced that due to our prolonged life expectancy public pensions are going to be cut 30% effective 2018. Or OAS doesn't kick in till 75.
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Re: Investment income in a CCPC

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tdiddy wrote:
Yes you have a point that it clearly would have been better to negotiate a fee increase retrospectively. And I am sure that the next round of negotiations between physicians and provinces will be very heated.

Allowing CCPC to save passively to make up for diminished RRSP contribution room during training while corporate employees were plugging along straight out of their B.A. makes good sense to me. Allowing small business owners the flexibility to save passively within their corporation for retirement or otherwise, due to the increased risks associated with their business vs employee also makes sense to me.

Deciding to not penalize stock options for CEOs and other ultra rich while doing this to professionals does not make sense to me (They easily could have introduced a capped limit to help startups)

You must realize anyone losing 30% of their ability to save for retirement is going to complain. I would like to see what the reaction would be from unions if JT announced that due to our prolonged life expectancy public pensions are going to be cut 30% effective 2018. Or OAS doesn't kick in till 75.
Or deciding that Canadians have been saving too much in RRSPs,that this is an abuse of the intent of RRSPs which obviously was to provide only a minimal pension in retirement and therefore anyone with a RRIF will be henceforth taxed at the top rate :?
Personally its the insinuation that those with corporations have been abusing the system that I find gratuitously insulting.I'm retired so I will be minimally affected compared to those still in practice and there is little I can do but protest anyway but I doubt any indirect or deferred incentive will be acceptable going forward in any future collective bargaining with government,and that includes bargaining with any other body or union representing labour.It will reinforce the concept that a bird in the hand is ALWAYS worth two in the bush when dealing with government.
If this goes forward as planned any worker in his right mind will see it as a prime example of bargaining in bad faith.Note that the legislation specifically allowing family members other than physicians in Manitoba to be shareholders was passed by an NDP government in Manitoba at a time when there was a Liberal government in Ottawa and that the likely use of such a structure for retirement planning and income sprinkling was openly discussed at the time!
Last edited by izzy on 11 Aug 2017 09:50, edited 2 times in total.
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Re: Investment income in a CCPC

Post by jackson »

ClosetIndexer wrote: 10 Aug 2017 15:51 To (biased) me, this seems more unfair to classical entrepreneurs than to professionals. When you start and run a small business, you take on quite a bit of risk. I have very little guarantee that my business will still be earning enough to support me in a few years; it could be about the same as it is now, it could be more, and it could be less. For that reason, I've always tried to live below my means and retain additional earnings in a holdco, so that if the business dries up, I'll have the savings to fall back on. The 'job' of a business owner generally involves a bunch of semi-related tasks; if the business dries up, it would be difficult to just go find a similar position.

That seems like a difference worth noting. Entrepreneurs start businesses that employ people and benefit the economy. They take on a greater amount of risk than most salaried employees in doing so. Treating their business profits - even if not drawn personally - as equivalent to the same amount of salary doesn't seem entirely reasonable.

Now, I do think some of these changes make sense, and in other cases I agree that the issues are real, but feel the proposed changes overreach. I won't get into the specifics there. But I just wanted to make the point that, for example, a small business owner whose business earned $180k last year is in a very different situation than, say, a computer programmer who made the same working for Amazon.
100% agreed! Couldn't have said that better myself :thumbsup:
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Re: Investment income in a CCPC

Post by izzy »

Of course!
And let's think of other "abusive" tax loopholes that could be closed.
Obviously it is unfair that homeowners can benefit from a tax deferred capital gain on their principle residence whereas renters cannot so let's
1.Do away with the principle residence exemption
and
2.let's tax capital gains on an annual accrual basis like other investment income
That would be so much fairer :roll:
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Re: Investment income in a CCPC

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20 years ago, employers were told by Revenue Canada, that if they hired contractors, those contractors had to be incorporated. The accountants told the subs that they could use their CCPCs for other purposes. So, at least in the IT industry, the problem is one of their own making!
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Re: Investment income in a CCPC

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ClosetIndexer wrote: 10 Aug 2017 15:51Now, I do think some of these changes make sense, and in other cases I agree that the issues are real, but feel the proposed changes overreach. I won't get into the specifics there. But I just wanted to make the point that, for example, a small business owner whose business earned $180k last year is in a very different situation than, say, a computer programmer who made the same working for Amazon.
One of the issues is, what's stopping the Amazon programmer from incorporating?
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Re: Investment income in a CCPC

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Rysto wrote: 11 Aug 2017 10:36 One of the issues is, what's stopping the Amazon programmer from incorporating?
The programmer's corporation would be taxed as a personal services business.
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Re: Investment income in a CCPC

Post by Koogie »

izzy wrote: 11 Aug 2017 10:00 And let's think of other "abusive" tax loopholes that could be closed.
I can think of at least 338 individuals in Ottawa and many more "retired" ones that benefit unfairly from the current retirement system. 8)

"We contribute $3.65 for every $1 the politicians put into their own pension pot." A pot which of course starts at age 55 and is indexed after age 60 and fully iron plated.
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Re: Investment income in a CCPC

Post by izzy »

Indeed ! and guess what Morneau did for a living in real life!
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Re: Investment income in a CCPC

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Koogie wrote: 11 Aug 2017 12:40
izzy wrote: 11 Aug 2017 10:00 And let's think of other "abusive" tax loopholes that could be closed.
I can think of at least 338 individuals in Ottawa and many more "retired" ones that benefit unfairly from the current retirement system. 8)

"We contribute $3.65 for every $1 the politicians put into their own pension pot." A pot which of course starts at age 55 and is indexed after age 60 and fully iron plated.
Actually, as of Jan. 1 the contribution ratio for MP pensions was set at 1:1. http://o.canada.com/news/national/by-th ... on-payouts
Also, the average term for an MP is 8 years. http://www.thecanadianencyclopedia.ca/e ... arliament/
The current average term of sitting MPs is 5 years and 4 months. https://lop.parl.ca/ParlInfo/compilatio ... rrent=True
If you don't win two elections, you don't qualify for a pension (you need six years). Not getting there can kinda suck. http://www.cbc.ca/news/politics/not-all ... -1.1155061

Of course, if you still think being an MP is unfairly lucrative, then run for office. There are no restrictions, other than being 18 years old and getting votes.
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Re: Investment income in a CCPC

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izzy wrote: 11 Aug 2017 14:08 Indeed ! and guess what Morneau did for a living in real life!
In his last year in the private sector, Morneau earned $1,071,859. As a cabinet minister, he is earning ~$250,000.
If he's trying to feather his nest, he's getting the math wrong.
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Re: Investment income in a CCPC

Post by Koogie »

fireseeker wrote: 11 Aug 2017 14:22 Actually, as of Jan. 1 the contribution ratio for MP pensions was set at 1:1. http://o.canada.com/news/national/by-th ... on-payouts
RIght. So in the past they were thieves but are slowly weaning themselves off the teat. Heartwarming. Perhaps we can encourage further moral growth and get them to pay for their entire pensions.
fireseeker wrote: 11 Aug 2017 14:22 Also, the average term for an MP is 8 years. http://www.thecanadianencyclopedia.ca/e ... arliament/
The current average term of sitting MPs is 5 years and 4 months. https://lop.parl.ca/ParlInfo/compilatio ... rrent=True
If you don't win two elections, you don't qualify for a pension (you need six years). Not getting there can kinda suck. http://www.cbc.ca/news/politics/not-all ... -1.1155061
Boohoo. Lots of people work their entire lives without pensions of any kind. Let alone after a measly 6 years. Let them have RRSPs like the proletariat and see then how their legislative agendas would switch.
fireseeker wrote: 11 Aug 2017 14:22 Of course, if you still think being an MP is unfairly lucrative, then run for office. There are no restrictions, other than being 18 years old and getting votes.
I don't have the moral ambiguity required. Feel free to fill your boots though.
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