A new report from Toronto-based Canadian Imperial Bank of Commerce (CIBC) is urging Canadian business owners to “act now” to avoid losing the small business deduction when new tax rules come into effect next year.
“If you’re a business owner and haven’t considered the tax implications of the new passive income rules, the time to act is now,” Jamie Golombek, managing director, tax and estate planning, with CIBC’s financial planning and advice group in Toronto, says in a news release. “Under the new tax rules, if your corporation has more than $50,000 of investment income in 2018, it may lose some, or all, of the small business deduction in 2019 — and the valuable, enhanced tax deferral that goes with it.”
Corporations that exceed the $50,000 threshold are at risk of having their business income taxed, entirely or in part, at the general corporate tax rate rather than the lower, small business rate. Furthermore, “the small business deduction limit will be reduced by $5 for every $1 of investment income above $50,000 and will reach zero once $150,000 of investment income is earned,” CIBC says in a news release.
The report, CCPC tax planning for passive income, offers strategies that advisors and business owners can use to mitigate these risks, including: maximizing RRSPs and TFSAs, looking into tax-free withdrawals, using various investment strategies, setting up an individual pension plan, and holding life insurance inside the corporation.
The report’s authors, Golombek and Debbie Pearl-Weinberg, executive director, tax and estate Planning, with CIBC’s financial planning and advice group, strongly encourage business owners to consult with tax experts by the end of 2018 to discuss some of these strategies.