Koroll & Company Blog

The 2018 Federal Budget brings forth several changes that could affect you both as an individual taxpayer and as a business owner.

For information on changes related to individual taxpayers, read our blog – 2018 Canada Federal Budget Commentary - Part 1: INDIVIDUALS and FAMILIES.

Looking at the Budgets proposed changes, in terms of businesses, the following will discuss several changes that could affect your company’s tax planning strategy on a go forward basis. While there are many new proposals, some of the proposed measures, such as alterations to the management of passive investment income and income sprinkling, may be familiar to you, as they were originally introduced in 2017.

In the past, parents who owned or operated corporations would have their minor children, directly or indirectly, subscribe to shares or invest in partnerships, which provided management services to the parent’s company.

They would then declare dividends on these shares, which would be tax-free, as these minors had lower income.

Most often, this income would be held in trust for the child.

The trust would then be used to pay for the child’s expenses – school, camp, extra curriculars.

This process became known as income sprinkling.

Global Intangible Low-Taxed Income, known as GILTI, is a newly introduced provision that requires United States shareholders to include additional earnings, in their gross income, for income derived from controlled foreign corporations (CFC).

Just about any financial or investment transaction can now be carried out online, and many Canadians conduct most or all of their financial affairs in an online environment, whether through their financial institution’s web-based banking and investment services or by using mobile apps.

The shift to managing one’s financial matters online has extended to dealing with income tax matters, and that’s a trend which has been both aided and encouraged by the Canada Revenue Agency (CRA).

The CRA’s most notable success in encouraging Canadians into the online tax world has been in relation to the filing of the annual tax return. Motivated, perhaps, by the prospect of quicker processing turnaround and faster receipt of tax refunds, Canadians have taken to online filing of returns in droves. For the latest filing year, 2016, over 24 million individual income tax returns (or 86% of total returns filed) were filed using electronic methods.

Cyberattacks on government or on a private company, in a single country or worldwide, are more frequently making headline news. The hackers who perpetrate the attacks seek to profit by it — either by demanding payment from the entity whose systems have been compromised, or by obtaining confidential personal information (especially identifying or financial information) about individuals, which can then use fraudulently or sold to others who wish to do so. 

In September of this year, the credit reporting firm Equifax, one of the largest in the industry,  announced that it had been subject to a major cyberattack. The attack was especially concerning, both because of the nature of the information Equifax holds, and because of the number of Canadians affected.

The principal residence exemption provides Canadian taxpayers with substantial tax relief.

When you sell property, you realize either a capital gain or a capital loss. A capital gain will occur if you sell your property for more than you paid to acquire it and make improvements, known as capital costs. The opposite is true for a capital loss.

While it would seem like good news to find out you made a profit on the sale of the property, the existence of a capital gain means that you have an additional tax liability. 

If, however, the property was your principal residence for all or part of the time you owned it, you may be able to avoid all or some of the liability.