Financial Planning

Questions to discuss with clients this December

By IE Staff |

 

Convincing clients, and especially business owners, to plan ahead — rather than look back — this holiday season may reward them with savings on their 2017 returns, according to Ernst & Young (EY) Canada's Asking better year-end tax planning questions.

"Tax rules are always changing and this year it's more important than ever for Canadians to understand how the federal government's private company tax reform proposals might impact their bottom line," says David Steinberg, EY Canadian tax leader, private client services. "Early planning and action means taxpayers can prepare accordingly and save money on their 2017 returns."

EY suggests these 10 questions advisors can share with clients this December to help plan their tax returns for 2017 and beyond:

1. Do you income-split private corporation business earnings with adult family members?
On July 18, the federal government introduced proposals and draft legislation that may limit income splitting opportunities with adult family members through the use of private corporations beginning in 2018. Discuss with clients the merits of maximizing income splitting with adult family members by distributing private corporation business earnings to them before the end of the year.

2. Do you receive non-eligible dividend income?
The tax rate applicable to non-eligible dividend income will be increasing for dividends received on or after Jan. 1, 2018. Clients who have discretion over the amount of dividends received, should consider receiving more non-eligible dividends prior to the end of the year. But be sure to weigh the savings of the lower non-eligible dividend tax rate against the tax deferral available by retaining income within the corporation.

3. Do you hold passive income?
The federal government has proposed to increase tax on passive earnings above a $50,000 threshold that will apply on a go forward basis. Draft legislation is expected to be released along with the spring 2018 federal budget. Now is the time for advisors and clients to on how to discuss how to optimize grandfathering.

4. Do you have capital gains?
Although Ottawa has indicated that it won't proceed with proposals to restrict access to the lifetime capital gains exemption, and other capital gains planning, it's important to review all capital gains transactions. Taking the time now to plan ahead can help clients save on future returns.

5. Have you paid your 2017 tax-deductible or tax-creditable expenses yet?
There are a variety of expenses, including interest and child-care costs, which can only be claimed as deductions in a tax return if the amounts are paid by the end of the calendar year. Check on expenditures that give rise to tax credits and consider if the deduction or credit is worth more to a client this year or next.

6. Have you maximized your tax-sheltered investments by contributing to a TFSA or an RRSP?
Make your tax-free savings account (TFSA) and registered retirement savings plan (RRSP) contributions for 2017 and catch up on prior non-contributory years. In order to maximize tax-free earnings, consider making your 2018 contributions in January. If you're considering making an RRSP withdrawal under the Home Buyers' Plan, you can withdraw up to $25,000 from your RRSP with no tax withheld, but must acquire a home by October of the following year. The funds must be repaid over 15 years starting the second calendar year after withdrawal. So if you can, wait until January 2018 before making the withdrawal.

7. Have you maximized your education savings by contributing to an RESP for your child or grandchild?
Clients should make registered education savings plan (RESP) contributions for children or grandchildren before the end of the year. With a contribution of $2,500 per child under the age of 18, the federal government will contribute a grant (CESG) of $500 annually.

8. Is there a way for you to reduce or eliminate your non-deductible interest?
Interest on funds borrowed for personal purposes is not deductible. Where possible, suggests clients consider using available cash to repay personal debt before repaying loans for investment or business purposes on which interest may be deductible.

9. Have you reviewed your investment portfolio?
Consider if you have any accrued losses to use against realized gains and determine if you have realized losses to carry forward.

10. Have you thought about estate planning?
Ask clients if there are any changes should be make to their wills or life insurance coverage. It may be the right time to consider an estate freeze to minimize tax on death and/or probate fees. Developing a comprehensive succession plan can help clients pass along the benefit of their assets.

Steinberg explains: "These questions may seem familiar, but as tax rules change and become more complex, it becomes increasingly important to think of the bigger tax picture continuously throughout the year."

 

Read IE's Special Report on Taxes to learn more about strategies for business owners, why large TFSAs are under review, yearend tax tips, receipt management software and much more.

 

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