CWB Wealth Management

2019 Federal Budget Commentary

CWB Wealth Management's Wealth Advisory Services conducted a Federal Budget review and created a list of items that may have an impact on various Canadian business owners. 

On March 19th, the Government of Canada released a proposed budget which includes a number of small adjustments which may impact various clients of CWB Financial Group in different ways. While there is no massive overhaul to the Canadian tax system and no mention of an alteration to the capital gains inclusion rate, there are some items which may have an impact upon Canadian business owners:

  • The proposal of a $200,000 annual cap, of preferential tax treatment, on stock option grants for employees. Current rules, which do not contain a cap on the FMV of underlying shares, allow for preferential personal tax by way of a deduction resulting in tax at only 50% of the normal rate. Clients may be interested to know that this applies only to large, long established mature firms and not to start-ups. Many executives of our corporate clients may be receiving a large number of stock options each year and these proposed changes could have negative impacts.
  • The addition of two new types of annuities which may be held in certain registered plans. Of particular interest is the Advanced Life Deferred Annuity (ALDA) which may allow the deferral of payment from certain registered accounts, including a RRIF, until the age of 85. Further, the value of the ALDA won’t be included in the calculation of the minimum withdrawal amount of a RRIF. Various rules will apply but this is generally great news for clients planning their retirements because it allows a retiree to ‘hold back’ a portion of their registered savings from creating an income stream until age 85 whereas previously these payments would have began at age 72.
  • Additional clarification to the potential taxation of business income generated within a TFSA has been added. If the CRA deems that the TFSA has created income through activities of carrying on a business (which is counter to the intended spirit of the TFSA), the tax owing on that income can be extended beyond the assets in the TFSA and placed on the TFSA holder. Generally, any income created within a TFSA is not taxed; however, if the CRA believes the TFSA is being used as a business account, income tax may apply.
  • Use of an Individual Pension Plan (IPP) set up with the intent of transferring the full commuted value of a pension from a former employer to a new company owned by the IPP recipient may be disallowed. This was a questionable advanced planning technique which could have been used to avoid restrictions on the value that could be transferred to a RRSP from a pension plan. 
  • An easing of the restricted access to the Small Business Deduction (SBD) for farming and fishing businesses. In the 2016 budget, rules were introduced which restricted access to the SBD for many small businesses, the measures in the 2019 budget seek to overcome those restrictions for farming and fishing corporations. This will, potentially, allow a greater share of business income to qualify for a lower tax rate which could have previously been taxed as general income.

 

To read the full 2019 Federal Budget Commentary, click here.

If you have any questions about these points or how the 2019 Federal Budget may impact you, please contact us.