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Ring in the season with end-of-year tax tips and changes for 2022

These pointers can help business owners and individuals save money and avoid unwelcome surprises

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As 2021 draws to a close, you still have time to take stock of your finances and plan ahead for the upcoming tax-filing season. It’s worth noting available deductions and new rules that might apply to you, as you review your business and personal tax situation.

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Here are some basic tips to help ensure you and your family are aware of potential tax-saving opportunities and can avoid unwelcome surprises at tax time.

Important tax changes to consider

You may qualify for new tax relief for family business transfers. If you’re thinking about transferring your business to your children or grandchildren, you should seek advice about the new federal income tax relief for intergenerational transfers.

These new tax rules are intended to ensure that owners aren’t penalized when passing on the family business to the next generation. Specifically, the changes address the transfer of private company shares to a corporation controlled by adult children or grandchildren.

The government is consulting on further amendments to these new rules, so stay tuned.

COVID-19 support programs are taxable.  If you or your company claimed the Canada Emergency Wage Subsidy (CEWS), the Canada Emergency Rent Subsidy (CERS) or the Canada Recovery Hiring Program (CRHP) in 2021, bear in mind that these subsidies are all considered taxable income and must be reported to Canada Revenue Agency (CRA) at tax time.

As well, the forgivable portion of the Canada Emergency Business Account (CEBA) loan is considered taxable income in the year the loan is received. This isn’t new, though the government’s support programs have changed. The federal government recently announced plans to extend the CRHP until May 7, 2022, and introduced the Hardest Hit Business Recovery Program, the Tourism and Hospitality Recovery Program and other relief programs, which effectively replace the CEWS and the CERS, which expired on Oct. 23, 2021.

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Be prepared to pay a hefty tax on luxury goods. Although the new luxury tax was originally proposed to take effect January 1, 2022, the government recently announced that it would release draft legislation for the new tax, including details on when it will apply, in early 2022.

The tax would apply to new vehicles and aircraft with a final sale price of more than $100,000, and boats priced at more than $250,000. The tax would be calculated as the lesser of 20 per cent of the total sale price above these thresholds or 10 per cent of the total sale price.

Be aware that even if you’ve purchased a yacht, plane or the car-of-your-dreams before Dec. 31, you may still be subject to the tax if you don’t take possession until the new year.

Claim deductions for depreciable property sooner.  The 2021 federal budget announced that Canadian-controlled private corporations (CCPCs) could immediately expense up to $1.5 million of eligible property each year that was acquired and available for use between April 19, 2021, and Dec. 31, 2023. This temporary, accelerated deduction is intended to free up capital for businesses to invest in assets that drive growth.

You may want to consider whether to accelerate or delay capital expenditures, if you would otherwise incur excess expenditures in one year and a shortfall in another. You cannot carry forward any unused portion of the limit into the next year. Draft legislation is still pending for this measure, which will provide further details.

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Other considerations for family businesses and owner-managers

Beware of the TOSI rules.  The tax on split income (TOSI) rules subject individual taxpayers to the top marginal personal income tax rate.

Consider whether distributions, such as dividends, from your company to your spouse or other family members are subject to the TOSI rules. If these rules apply, your family members will be taxed at the highest personal income tax rate, even if they wouldn’t otherwise be in the top income tax bracket.

Do you employ a family member?  If you employ your spouse and/or child and pay them a salary to provide services to your business, you can receive certain tax benefits. First, the TOSI rules do not apply to salaries paid to family members. Second, their salaries count as a tax deduction for your business. Just make sure the salary is reasonable and be sure to document work performed to provide proof of their contribution.

Evaluate the merits of an income splitting loan.  When a family member is looking for capital, decide whether it makes sense to make a prescribed rate loan to them or to the family trust.

A prescribed rate loan is created when investment capital is lent by a high-income family member to a low-income family member or family trust. If it’s properly implemented, you can arrange for investment income earned over the CRA’s current prescribed rate of 1 per cent to be taxed at a lower-income family member’s tax rate while the loan is outstanding.

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Make your charitable giving count.  Charitable donations are a great way to support the causes that are important to you and your family and can also improve your personal tax situation. The tax savings you receive depend on the type and value of the gift you make, your income level and province of residence.

More On This Topic

  1. You’ll have to pay the tax if your new recreational motorboat, yacht or sailboat sets you back more than $250,000.

    Make your big purchase now or possibly face Canada’s new luxury-goods tax

  2. The Canada Revenue Agency lists 33 types of living or inter-vivos trusts that can be established for a variety of purposes and for different beneficiaries.

    A living trust can reduce family taxes, minimize disputes

Whether you ultimately choose to make a cash donation or a gift of property (known as a “gift in kind”), you’ll still have to make your charitable gifts by Dec. 31, 2021, to claim the tax credit on your 2021 tax return.

Dates to note

Finally, this year’s personal tax filing date is May 2, 2022 (since April 30 falls on a Saturday). The deadline is June 15, 2022 for Canadians who are self-employed or those whose spouse is self-employed. Corporate income tax returns are due six months after year-end.

Overall, working with a tax professional is the most effective way to assess your tax situation and achieve greater savings. It can also help you to prepare for any eventuality and realize your long-term business and financial goals.

For more helpful ideas, check out KPMG’s TaxNewsFlash-Canada: Owner-Managers: Time to Do Your 2021 Year-End Review.

Dino Infanti is Partner, National Leader, Enterprise Tax for KPMG LLP in Canada. He is also a member of the Family Office leadership team at KPMG.

Dino Infanti
Dino Infanti

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