Vancouver, BC -- (ReleaseWire) -- 08/30/2018 --At the start of 2018, tax advisors and incorporated businesses awaited the 2018 federal budget with high levels of anxiety. The initial announcement to eliminate the tax deferral advantage that a CCPC enjoyed using its after-tax business income to earn passive income was severely punitive. As time passed, Ottawa responded to input from the business community and tax advisors, and the 2018 federal budget offered some relief to vested parties.
For more, go to: https://www.mewco.ca/blog/vancouver-tax-planning-for-ccpcs-as-we-approach-the-second-half-of-2018/.
First, the corporate tax rate on income subject to SBD has been lowered to 12% in BC. This is great for young entrepreneurs who are starting out with little retained earnings. This means up to $500,000 of business profit earned within a CCPC is only subject to $60,000 corporate taxes in total. This type of low tax rate allows a budding business to retain earnings that can facilitate expansion.
The changes to the taxation of investment income earned by a CCPC's retained earnings will impact more mature businesses. Many CCPCs that have extra funds that are not required for expansion or capital investments will place those funds in an investment portfolio or real estate. The investment portfolio can hold stocks, foreign currencies, or any other asset class. Investment portfolios generate interest, dividends, and capital gains, while real estate will generally net rental income and capital gains.
Under the new rules, a CCPC can earn up to $50,000 in passive income without being impacted by the new rules. For every additional $1 earned after the $50,000, a CCPC SBD limit will be reduced by $5. In other words, a CCPC that earns $ 150,000 in passive income will receive no SBD in the calculation of its corporate tax and will pay 26% tax rate on all business profits earned.
The new rules pertaining to passive income will apply for taxation years that start after 2018. However, 2018 investment income will impact the grind down of SBD for the 2019 tax reporting year, so tax planning is called for during the 2018 taxation year.
The new 2018 rules to tax passive income have further burdened what was already a complex taxation system, involving higher tax rates and a refundable tax pool. Starting in 2019, tax advisors will have to deal with two refundable tax pools and perhaps a different remuneration method to the shareholder(s) to avoid the SBD grind. This is in conjunction with the end of dividend sprinkling after 2017 which will surely add to the tax planning work required during the fall of 2018.
To learn more about how changing tax laws will impact a business and savings, contact the charted professional accountants at Mew + Company at 604-688-9198.
About Mew + Company
Mew + Company in 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://www.mewco.ca/.
Lilly Woo, CPA, CA, CFE, CFP
Mew + Company Chartered Professional Accountants
604-688-9198
Company Website: https://www.mewco.ca/
Tax Planning for CCPC's from the Experienced Chartered Professional Accountants at Mew + Company
The Vancouver tax advisors at Mew + Company share the tax planning work that will be required for CCPC in Fall 2018