Chartered professional accountants in Vancouver offer tax planning tips to minimize the SBD clawback
Vancouver, BC -- (ReleaseWire) -- 08/24/2019 -- In a previous blog, the Vancouver chartered professional accountants at Mew + Company in Vancouver discussed why a CCPC shareholder is better off holding real estate investment or any passive investment in a CCPC versus personally. The follow up in the two-part series contains tips on how to reduce the SBD (Small Business Deduction) claw back. For more, go to: https://www.mewco.ca/blog/holding-real-estate-investments-in-the-ccpc-part-2/
Those familiar with recent changes to CCPC tax laws will note that there is a $50,000 investment income ceiling, after which for every $1 in additional investment income, the SBD will be reduced by $5.
Consequently, once investment income reaches $150,000, the entire SBD will be eliminated. In other words, no income will qualify for the 11% tax rate, and all corporate profit will be taxed at the 27% corporate tax rate.
While the new rules governing passive income that came into place in 2019 are complex, there are a few strategies to minimize the impact on SBD.
Consider issuing salaries to active shareholders rather than dividends. Given the increased tax rates that are applied to ineligible dividends in the past few years, receiving salaries may be an equally good (if not better) option going forward. Salaries create RRSP room which allows for tax-free growth of investment outside corporate tax rules.
Second, remember that investment counselling fees should be netted off against investment income on the tax return. This ensures proper allocation of expenses to active income and passive income and hence, staying below the $50,000 investment income limit. A similar idea applies to any fees paid for professional services that relate to a short-term rental business.
Remember, real estate investments in general do not create large passive income due to management, financing, and ownership costs. This is particularly true in Vancouver.
Finally, individual pension plans and exempt life insurance products by their nature will not produce "investment income" that falls under the new rules. However, these products are complex and involve long-term commitment and upfront "set up fees," even if not termed as such. Buying these products to avoid the new investment rules for CCPC is not advised.
Understanding the new rules for passive income in 2019 is trickier than ever. As a team of chartered professional accountants in Vancouver, a general guideline is, once again, real estate investment in a CCPC makes sense only if there are corporate retained earnings somewhere. To learn more about corporate tax planning and how to streamline tax savings on property holdings, call 604-688-9198 to speak to an experienced Vancouver CPA today.
About Mew + Company
Mew + Company, Vancouver, is an ideal solution to the taxation problem. With a simple philosophy of building long-lasting customer relationships, the company has been serving corporate clients in a variety of fields—including restaurants, real estate, retail, and the service industry. Investing in their specialist services will undoubtedly be fruitful for all kinds of clients.
To learn more about Mew + Company and discuss their services, log on to https://mewco.ca/.
Lilly Woo, CPA, CA, CFE, CFP
Mew + Company Chartered Professional Accountants
604 688 9198
Company Website: https://www.mewco.ca
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