This will not be the primary time taxpayers with corporations have experienced tax changes. In 2018, the flexibility to separate dividend income amongst relations was significantly restricted by the introduction of a split income tax. This resulted in tax increases for some families who were accustomed to splitting dividends amongst multiple relations with a view to pay less tax overall.
Changes in corporate tax in recent times have made it more attractive for owners of incorporated businesses to withdraw money from their businesses moderately than accumulating it. Corporate tax rates for small business owners generally range from 9% to 12.2%, depending on the province or territory during which they’re positioned.
This ability to defer taxes in comparison with paying a salary or dividends to an owner-manager is tempting. But the upper tax rate on corporate capital gains makes it even cheaper to withdraw additional company funds and put them into private investment accounts like RRSPs and TFSAs.
Should you trigger capital gains tax before June 25?
If an organization has deferred capital gains tax on investments which have appreciated in value and that it plans to sell inside the following five to 10 years, it could be higher to assert capital gains tax before the proposed deadline. The dollar amount payable on the sale of investments after June 25 shall be about 33% higher than before June 25.
It is price noting that the budget specified that the upper capital gains tax rate would apply to disposals made on or after June 25.
On May 27, 2024, the Canadian and U.S. securities markets switched to what’s often called a T+1 settlement time (trading day plus one business day), so a trade would wish to settle by June 24, likely meaning selling by Friday, June 21, to qualify for the lower capital gains tax rate.
What other tax changes might the longer term bring for Canadians?
These recent tax changes have taxpayers wondering what’s to return. The truth is, we simply do not know. But if I needed to name one thing that married or cohabiting Canadians could proactively consider doing to guard themselves from potentially higher taxes in retirement, it might be contributing to a spousal RRSP.
If your RRSP balance or retirement income has a big difference in comparison with your spouse, the spouse with more assets or income can contribute to a spousal RRSP owned by the opposite spouse. The contributor gets the tax deduction and the contributions reduce their RRSP room. The owner of the spousal RRSP account could make the longer term withdrawals.
