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Planning for Higher Taxes

Wednesday, November 4, 2015
by Russ MacKay, CIM

The majority Liberal government is proposing a new tax legislation, which will result in changes to tax rates on various types of income in all provinces and territories.  While incorporating tax efficiencies should always be considered, the new rates only amplify the importance of planning for high income earners.  Below, we highlight some tax-saving strategies:

Spousal Loans – Income splitting using spousal loans has long been an effective means of reducing your household’s total tax liability.  This opportunity is most lucrative when one spouse has a significantly higher income than the other, resulting in two widely different tax brackets.

Family Trust – With the proposed tax increases in 2016, utilizing a family trust to allocate income to beneficiaries of the trust in lower tax brackets may offer considerable tax savings.

Dividends from Holding Companies/Corporations – Tax rates on eligible dividends will be going up in 2016, so consider maximizing the amount of dividends paid out in 2015.  In addition, depending on your corporate year end, you may be able to advance your 2016 dividend into the 2015 calendar year to benefit from the lower current tax.

Stock Options – The new tax platform includes adjustments to the tax implications when exercising stock options.  If you have more than $100,000 in annual stock option gains you may consider exercising before year end to avoid the proposed tax implications.

Capital Gains – With rates on capital gains increasing in 2016, investors may wish to crystalize capital gains before year end to benefit from the lower 2015 tax levels. (Note that the last trading day for trades to settle is December 24th for 2015)

Income Creation – Accelerating income from 2016 and beyond into 2015 will allow you to benefit from lower tax rates in 2015 versus 2016.

TFSA – Ensure your $10,000 contribution is made for 2015 before December 31, 2015, as the proposed tax legislation will reduce the maximum back to $5,500 in 2016.

These are just a few points of consideration for investors.  We recommend that you consult with your tax advisor to discuss the proposed tax changes, and what strategies may be appropriate for you.

We offer the links to two reports outlining the tax changes and considerations:

KPMG: Highlights of the 2015 Alberta Budget 

Grant Thornton: Fall 2015 Alberta Budget Summary 

 

 


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