The major changes as announced in the February 28, 2000 Federal Budget are as follows:
- Restoration of indexing for exemptions, deductions, tax levels and seniors payments. This means that the Canadian taxpayer will not pay more tax each year solely as a result of inflation.
- The Capital Gains inclusion rate drops from 75% to 66 2/3%. This change effectively eliminates 8 1/3% of taxable income on your personal/corporate tax returns for all capital transactions occurring after February 27, 2000.
- The Federal corporate tax rate on CCPCs' (small corporations) income between $200,000 and $300,000 drops from 28% to 21% on January 1, 2001. This tax rate drop eliminates most of the "cost" to the corporation for earning over $200,000 and may change the requirement to bonus out income in excess of $200,000 to the shareholders.
- RRSP foreign content limits increase to 25% for 2000 and to 30% for 2001. This is the maximum percentage of foreign assets you can hold in your RRSPs'.
- Small business (CCPC) owners will be able to defer the utilization of the $500,000 capital gains exemption on the sale of their shares if they subsequently purchase another qualified small business (CCPC). This program is an incentive to maintain an ownership interest in a small corporation and may not have any immediate tax benefits.
- The second level of personal Federal taxation (taxable income of $30,004- $60,009) will experience a 2% tax rate decrease, from 26% to 24%, July 1, 2000. This tax rate will lower to 23% the following year.
- The Child Tax Benefit will increase to $1,975 for the first child for 2000 as previously announced, then rise to $2,400 over the next five years. Effective July 1, 2000 the Child Tax Benefit and GST Credit programs will increase approximately 9% and the clawback thresholds increase. For the Child Tax Benefit program the income threshold increases from $25,921 to $30,004.
- In calendar 2001 middle income earners (up to $85,000/year) will realize the elimination of the 5% deficit surtax. This 5% surtax will be eliminated for all taxpayers by 2004.
Overall the Federal Budget results in immediate tax savings of $500/year for the average family.
SUMMER OFFICE HOURS
As in previous years the office will be closed on Fridays for May to September. You will be able to leave a Voice-Tel message which will be reviewed on a regular basis. Our office will be open, as usual, from around nine in the morning to about four thirty in the afternoon Monday to Thursday.
1999 PERSONAL TAX RETURNS
We want to thank our clients for providing their personal tax information on a timely basis. Your efforts allowed us to prepare and file all the tax returns by the due date.
We would appreciate receiving copies of your 1999 personal tax returns notice of assessments by October 2000 in order to assist with your 2000 personal tax planning.
A reminder that charitable donation receipts made out to your company does not provide an additional tax reduction. If you are making a "personal" charitable donation please ensure that the slip is completed in your personal name and address. The personal tax savings for charitable donations are at the highest personal tax level therefore you always save taxes with personal donations.
A number of our clients have shirts etc. with their companies names and logos proudly displayed. You usually give this clothing to your employees to wear at work. We at Ruffins force our franchisees and their employees to dress in "Ruffins Wear" while in the store. As this clothing wears out it is sometimes given to Amity or Goodwill to be passed on to the homeless. This is not always a good idea.
A few months ago one of our clients was approached by a scruffy guy driving a beat up van to see if he was interested in buying top quality stereo equipment "direct from the manufacturer". These goods were obviously stolen and our client declined but did notice that the guy was wearing a dirty "Ruffin It'" T shirt. Our castoffs, supposedly to help the less fortunate, was now worn by a street criminal. My comments are obvious, throw your old corporate clothing out.
NEW VEHICLE LIMITS
For calendar 2000 the maximum eligible capital cost for depreciation for new vehicles is $27,000 plus PST/GST. The maximum monthly lease cost is $700/month plus PST/GST. The maximum for per kilometre deductions/expense has also increased effective January 1, 2000. The new limits are $.37/kilometre for the first 5,000 km/yr and $.31/kilomtetre for the remaining kilometres. Note that no new limits were announced in the recent Federal Budget.
The major changes as announced in the May 2, 2000 Provincial Budget are as follows:
- Most Ontario taxpayers will receive a "tax rebate" cheque of $200 sometime in the fall.
- The Ontario government matched the Federal government and lowered the Capital Gains inclusion rate to 66 2/3% for 2000. The Ontario government is then lowering the inclusion rate to 62% for 2001 and will lower the rate to 50% by 2004.
- Ontario reduced the personal income tax rates for taxpayers earning under $60,010 for 2000 by approximately 3%. Taxable income above $60,010 did not receive an additional reduction.
- The province is phasing out the 5% PST on car insurance premiums, starting with a 1% immediate reduction. The PST rate on car insurance will lower by 1% per year until eliminated.
- The province lowered the "large corporation" tax rate from 15.5% to 14.5% for 2000. This rate will drop to 8% by 2005. A reminder that in previous budgets the province established a 1/2% per year corporate tax rate drop for small corporations with a final rate of 4.75% by 2007.
Overall the Provincial Budget results in immediate tax savings of about $500 for the average family.
If there is an area of interest or a business related story you would like to share with our clients please e mail me direct at email@example.com. Thanks.
UNIVERSAL LIFE INSURANCE
The past year has witnessed dramatic changes in the life insurance business with demutualization of the corporations and new products developed. Universal Life Insurance is the latest hot product that combines a whole life product with a tax deferred investment vehicle. Your premiums, which are more then a typical whole life product, are split between insurance costs and investments. These investments grow tax free in the universal life product. You can over contribute your premiums which would then increase your investment portion. After a number of years you can borrow money against the policies investment portfolio, which you would receive tax free. The outstanding loan would be paid out by the insurance policy before the proceeds are distributed to your estate.
A few of our clients are establishing a universal life policy for their corporations thereby ensuring there will be enough money to pay their taxes upon their death and also establish a "tax free" investment zone for any excess cash they may have. In fact if the corporation owns the policy the proceeds of the policy upon the owners death is paid to the company tax free. The proceeds can then be distributed tax free through the capital dividend account to the remaining shareholders. This program could be part of your overall personal planning program. Please contact the office and/or your insurance agent for further details.