2023 Federal Budget Highlights

2022 Federal Budget Highlights

Author: Vince Olfert, MBA, CIM, Certified Financial Planner^®

There was much speculation on what would be coming in the 2023 Federal Budget. Many economists that we follow predicted that tax increases were not possible based on the current tax levels, but the capital gains inclusion rate was on the table as well as several benefits for lower-income Canadians.

So, how did it all pan out? Here is a quick summary of what the budget proposes. Let us know if you have any questions on how this impacts you.

Health and Dental Plan

Currently available for those under age 12
Proposed change: Expanded to those under 18 and seniors
Eligibility
- No Group dental coverage
- Family Income below $90k

Minimum Tax

The government has a minimum tax for Canadians, called the Alternative Minimum Tax (AMT). However, the government feels like high income Canadians are still paying too little in tax.

Proposed change:

The government wants to broaden what impacts the AMT and
They want to increase the AMT percentage from the current 15% to 20.5%

Inflation Relief Program

To help lower-income Canadians with inflating costs, Canadians eligible for the GST rebate will see their rebate double as soon as the budget passes.

RESP

First semester withdrawal restriction will increase from the current $5,000 to $8,000.

Corporations

Bill C-208 had a loophole which penalized generational family business transfers. Bill C-208 was initially meant to close a tax loophole where companies would convert dividends to capital gains, but it inadvertently affected family businesses genuinely wanting to transfer their business to their kids/grandkids/nieces/nephews.

This is proposed to be fixed for the 2024 tax year.

Multigenerational Home Renovation Tax Credit

If you plan to purchase a home with an ageing parent or are looking to purchase a home with your kids, there may be some tax incentives which apply to these situations. Reach out to your advisor to see if the rules apply to you.

Employee Ownership Trusts (EOT)

The government has proposed allowing Employee Ownership Trusts including proposed rules and guidelines. This will most likely morph before it becomes effective January 1, 2024, but here is a quick summary. The proposed Employee Ownership Trusts:

Allows the business owner to sell shares to employees
Allows for a 10-year capital gain reserve
Is NOT subject to the 21-year deemed disposition rule
Beneficiaries must be employees of the trust
Must hold a controlling interested in a qualifying business
Cannot allocate shares to individual beneficiaries

This will be an interesting tool for small/medium-sized businesses looking to transition the company to employees. Stay tuned!

What We Didn’t See

We didn’t see:

A change to the capital gains inclusion rate. This has been expected for some time…and yet we still wait.
Increase in personal taxes. This wasn’t expected as personal tax rates are already high.

Wrapping up

There seems to be a real focus in the 2023 Federal Budget on helping lower income Canadians. It also includes benefits to post secondary students and small to medium businesses in transition. As the proposed changes are rolled out, we’ll see how these programs work out practically.

If you have questions about any of the budget items and how they may impact your financial plan, feel free to reach out to your advisor.

Saving For Retirement

What Are Your Options?
What is the best investment plan to use to save for retirement? It used to be fairly simple; the answer was maximizing your RRSP. Do you know what is the best strategy for your situation? Do you know what your options are?

Here is a basic overview:
1. Save – The first rule of thumb to be concerned about is that you are saving money for your future. Too many Canadians are spending all of what they earn and not putting away any money for their future. A good place to start is to aim at putting away 10% of what you make.

2. Tax Efficient – Ever since the launch of the TFSA, there has been a debate by financial professionals over which investment plan is more tax efficient to use, the RRSP or TFSA? My opinion is that it depends on your situation both now and in the future and should be looked at on a case-by-case basis to see what fits best. I would be cautious if a financial advisor is always only promoting one plan type over the other, both have their benefits. (For more info on TFSAs, see my article from Sept 2013 – http://jaybrecknell.ca/demystifying-tfsa/)

3. Business Owner – If you are a business owner the question can get even more complex as you have more options. Should you use your RRSP, TFSA or instead save your retirement funds in a holding company? Since corporate tax rates are at an all time low in Canada more business owners are saving corporately versus in a RRSP or TFSA. There can be many benefits to saving corporately as it can provide flexibility to the business owner. As this can be complex it needs to be put together by a professional that understands your corporate structure and the tax and legal rules that are involved.

As with any financial strategy we would recommend ensuring that you have your personal situation reviewed by a professional to make sure that is done in the best way possible. If you have any questions or would like your plan reviewed feel free to contact us.

Questions?

December 1, 2014/by Vince Olfert

Business Planning

Business Owners Fail To Plan

Prepare Your Business For Sale
Only 9% of business owners have a documented transition plan in place and yet 70% of small business owners plan to transition in the next 10 years*! As a financial planner I continue to meet business owners who are planning to sell or transition their company but they do not have a plan. Typically they are either unsure of the process, so they procrastinate or the business is their baby and they do not want to let it go. It is understandable that a major decision like this is hard to make, especially without someone to assist you.

When a business owner is considering selling here are some things to consider:

1. Don’t Leave the Party Last – You see this with professional athletes when they face the question of when to retire? In my opinion you are either growing your business or it is shrinking it, there is no standing still. A lot of business owners later in their career can get into maintenance mode, which usually means the business is starting to decrease in revenues. At first the revenues may hold but after a couple of years you typically see them start to decline. If you want to maximize your selling price and be attractive to potential buyers be careful to wait too long.

2. It Takes Time – Selling a business can take you longer than you think. You need to find the right candidate to take over your business. You are looking for an individual that is an entrepreneur; remember there are more employees in the world than business owners. Also, in most transitions the current owner is asked to stay with the company to assist with the passing of the reigns. You should plan for 1-2 years to sell. This means you should be creating a plan 5-7 years prior to your planned exit.

3. Change – Every industry is faced with changes due to technology, regulatory, competition, etc. If you owned a video or record store in the 80 or 90’s, when was the best time to get out? What if the technology that Google is working on to make it so that cars drive themselves eliminate car accidents in the future. Could that affect you if you own an auto body business? What changes face your business?

4. Financials – Often times the financial statements for a business are ignored until it is too late. Yet they will play a very important role in the sale of the business. You want to make sure that your financials present the best view of your company so that a potential buyer is enticed to make an offer.

There are many things to consider when selling a business. The first is to get a professional that can assist you with putting a plan together to ensure that you maximize the value, save tax, and control when and how you sell your business. As with any financial strategy we would recommend ensuring that you have your personal situation reviewed by a professional to make sure that is done in the best way possible. If you have any questions or would like your plan reviewed feel free to contact us.

Questions?

*Source – http://www.advocis.ca/Update2014/index.html

December 1, 2014/by Vince Olfert

Insurance, Personal Planning

Protecting Your Biggest Asset

The Most Overlooked Risk
What is your biggest asset? Most people might answer your house, boat, car, or investments. When in fact it is your income and your ability to earn a living.

When I review a person’s financial situation, one of the most common areas that is overlooked is to protect their ability to earn a living. Disability insurance is a critical part of a person’s risk management plan. When you think about all of the things that people have insurance for, cars, houses, electronics, death, etc. Unfortunately if you do not have an income all of these other areas fall apart.

When it comes to managing risk, a financial planner looks at two main factors:
1. Risk – what is the chance of this happening?
2. Impact – If it does happen, what is the potential damage?

As an example, the risk of a house fire is low but the damage it can cause financially is extreme. Hence why people buy home insurance.

The Risk Is High:
Did you know that 1 in 3 people, on average, will be disabled for 90 days or more at least once before they reach age 65?*

The Impact Can Be Severe:
How long could you survive for without your income? Most families could last maybe 4 to 6 months before they would have to start selling other assets such as investments or their home. How would you survive till age 65 and then into retirement?

The main way to manage this risk is to have long term disability insurance to protect yourself in case of an illness or injury.

Possible Options:
1. Canada Pension Plan – This will only pay for the most severe disabilities and the amount is small.
2. Worker Compensation – This only covers you if it is a work related injury.
3. Group Plan – This is how most Canadians are covered. IMPORTANT! You should have your coverage reviewed to make sure you are properly protected.
4. Individual Plan – You can purchase this through the major insurance carriers.

Key Facts:
• If you are an executive or earn over $80,000 per year and you have group coverage you should have it reviewed, as you may not be fully protected.
• If you have group coverage your plan definition typically will change after 2 years of being disabled. This can allow the insurance company to decline your coverage if your disability is not severe enough. This is done to keep your rates lower for your group plan. You can get individual insurance to protect against this.
• The definition of a disability policy is critical.
• Most disability insurance is designed to cover you till age 65; some may have only a 5-year benefit period.

Questions?

*Source – “A guide to disability insurance”. Canadian Life & Health Insurance Association

December 1, 2014/by Vince Olfert

2022 Federal Budget Highlights

Author: Vince Olfert, MBA, CIM, Certified Financial Planner®

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Author: Vince Olfert, MBA, CIM, Certified Financial Planner^®