WINTER 2 0 1 8 / 2 0 1 9
corporation as a dividend that is
taxed in Marni’s hands).
The main purpose of this new
rule is to reduce Marni’s future
corporate tax deferral from
37.8% down to 22.8% on the
$250,000 of 2019 income no
longer subject to the SBD rate.
So, what can incorporated
professionals such as Marni and
business owners do to avoid
the reduction in the amount of
income eligible for the SBD rate
in 2019? In a nutshell, minimize
their CCPC’s 2018 AAII and
try to keep the amount below
$50,000 in 2018, where possible.
Here are a few ideas:
INVEST TO EARN
(DEFERRED) CAPITAL
GAINS
Capital gains are only 50%
taxable and thus only 50%
CORPORATE INVESTMENT STRATEGIES
of gains are included in the
definition of AAII. Furthermore,
if gains are not realized on
an annual basis and can be
deferred, they do not form
part of the AAII calculation in
the current year—only when
realized.
PAY SUFFICIENT
SALARY/DIVIDENDS
TO MAXIMIZE
RRSP & TFSA
CONTRIBUTIONS
Business owners should
generally pay themselves enough
salary annually to maximize
RRSP contributions. Salary of
$145,722 that was paid in 2017
will allow the maximum 2018
RRSP contribution of $26,230
(18% of $145,722). Moving the
money out of the corporation
and contributing to an RRSP
means that investment income
earned on the distributed funds
are excluded from AAII.
Similarly, business owners
should be paying sufficient
salary/dividends annually to
maximize their $5,500 annual
TFSA contributions. Extracting
funds to invest in a TFSA means
that investment income earned
on those funds will also be
excluded from AAII.
CORPORATE-OWNED
LIFE INSURANCE
A corporation may choose to
invest its after-tax income in
a permanent life insurance
policy that insures the life of
someone, typically the owner-
manager. While the Budget
specifically captures income
from a non-exempt policy in the
$50,000 annual passive income
31
test, it appears that an “exempt
policy”, where no income is
required to be included in the
holder’s income over the life of
the policy, does not appear to
come under the ambit of these
new measures. This could be a
strategy for business owners to
consider in consultation with
their tax advisors.
INDIVIDUAL PENSION
PLANS
An Individual Pension Plan
(IPP) is created for one
person, rather than a large
group of employees. Since the
corporation contributes to the
IPP and the income earned in
the IPP does not belong to the
corporation, it too should not be
subject to the new rules. An IPP
could be a strategy to consider
once AAII exceeds the $50,000
threshold.
CON T I N U E YOU R
WOR K- OP T IONA L LI F E
CON V ERSAT ION
Is your charitable
giving making a
difference?
We can help.
contact us at [email protected]
Visit www.smartriskinvesting.com
or contact [email protected]