Personal Finance

Trudeau going after Personal Services Corps disguised as small businesses

  • Last Updated:
  • Dec 17th, 2017 10:14 am
Deal Addict
May 22, 2003
2332 posts
1054 upvotes
Vancouver
Will obviously wait for the 2018 budget before making any major moves, but I've already switched most of my index funds into swap-based ETFs. HXS, HXT, HBB were already core holdings, but i've switched my international index fund to HXDM (a new international swap-based ETF). Going forward, I will probably hold most ofmy dividend-paying stocks in my registered personal accounts, and will hold mainly stocks with no distributions (e.g. BRK.B) in corporate investing account. I may draw a little more salary to max out my RRSP/TFSAs. So I'm thinking overall I might actually pay less taxes, so technically these new rules may not impact me as much, but the extra administrative work will not be welcome.

I suspect that similar to how the increase in personal taxes led to a decrease in tax revenue, these new tax proposals will not bring in nearly as much revenue as the government is forecasting. But will cause much unnecessary headache for many of us. As described in my previous post, the number crunching shows that even with the "favorable" tax treatment for corporations/ccpc, we may actually be financially disadvantaged compared to salaried employees. Hopefully there will be further changes prior to the budget being introduced.
Member
Apr 14, 2015
495 posts
111 upvotes
Tsuu T'Ina, AB
Well, now the calls are coming for Morneau to resign. He won’t, but the knowledge that none of this sketchiness would have come to light if he hadn’t gone after business owners is starting to feel a bit schadenfreude.
Deal Addict
Feb 9, 2009
4659 posts
2338 upvotes
Operatime wrote:
Dec 1st, 2017 8:44 pm
Well, now the calls are coming for Morneau to resign. He won’t, but the knowledge that none of this sketchiness would have come to light if he hadn’t gone after business owners is starting to feel a bit schadenfreude.
The pressure will continue -- i think eventually if this stays a story Trudeau will have to kick him out if it will effective his campaign - you can bet the other parties will be targeting Morneau in 2019 if he stays...
Deal Addict
Oct 7, 2007
3164 posts
742 upvotes
Morneau's body language when asked about his personal affairs related to these issues does not make him look good. And, at the same time, he does not provide any credible explanation for the sequence of events but instead hides behind holding information back and making statements irrelevant to the situation at hand (e.g. ...We were elected by Canadians who want blah blah blah...). I am pretty sure Canadians also expected honest and sincere governing by our leaders. Please set the right example and if it means stepping down better to do it with grace than in a humiliating manner.
Deal Addict
May 22, 2003
2332 posts
1054 upvotes
Vancouver
Too bad election is not next year, my greatest fear is all this dies down by 2019 and people forget.
Deal Addict
Oct 7, 2007
3164 posts
742 upvotes
Jermyzy wrote:
Dec 2nd, 2017 5:23 pm
Too bad election is not next year, my greatest fear is all this dies down by 2019 and people forget.
Agreed about wishing the election was next year but I don't think people will forget. I've never seen so much outrage and backlash about a tax policy before. It's almost like no politician would dare do something so bold and in your face as these guys did. And I'm not even bringing in the conflict of interest stuff. I really hope people do not vote Liberal though. There still seem to be a lot of supporters out there that don't get what is going on right now. It's like our society is divided. On the one side we have the people who are working hard in their businesses that are negatively affected by this tax policy. And on the other side we have people who are benefiting from all of the handouts that this government is using to make themselves look good while using the hardworking people as the direct funders of these "freebies".
Newbie
Jan 18, 2017
52 posts
28 upvotes
For tax purposes, there is no difference between one or the other. It's simply a matter of when the actual cash is released to the SH.

For actual "life" purposes, there are all sorts of reasons why cash wouldn't be released, even though a dividend was declared. Sometimes it's as simple as cashflow reasons. Other times it could be that declaring a dividend is done mainly for purposes of reducing refundable tax (RDTOH), as opposed to creating income for the SH.

Anyway I don't want to hijack this thread too much, so I'll keep things at that. PM if you have more queries.
mr_raider wrote:
Dec 1st, 2017 12:16 pm
Got it.

The risk here is you don't want to over pay yourself in 2017 otehrwise you don't want to blow up your 2017 tax bill too much either. Plus I don't see this as practical for more than one or two years out.

What's the functional difference between doing this and just paying out the dividend, taking the cash and stuffing it in a savings account until you use it?
______
Canadian & US tax guy
Member
Jul 20, 2017
322 posts
68 upvotes
There is an article in the G&M about the rush to implement the rules before Jan 1..I seriously doubt that in 14 working days left ( I take boxing week out) we will see the announcements, especially if morneau resigns...Public service seems to be too busy trying to get paid ( fixing Phoenix)...
This is unprecedented: to have changes so deep published so late....Not sure if trudeau and his liberals will ever start to govern...all this flashy travel and selfies and socks...
All they do is announcements, PR....but producing something...that is not happening...
Member
Jul 20, 2017
322 posts
68 upvotes
I really hope they will get this right. Will we probably have to fill out forms allocating the 50k business income between the related corporations? Probably yes...otherwise we just can start another corporation Smiling Face With Open Mouth
I am afraid doctors will start several companies, one for leg injuries, one for hand injuries, ...you get my point. Dentists will have one for molars, one for front teeth, Smiling Face With Open Mouth And Smiling Eyes. IT workers will create more then 1 companies: one for design, one for development and one for maintenance.

Then all the dividend top-ups..Maybe this extra 73% taxed income will have it's own top up rate? And tax credit?
Those who have cottages in numbered corporations, will divide up the rooms between the different companies. Will see names like The Laurentian Living Rooms co...
By the way morneau: no pressure there are 13 days left, hope phoenix can handle overtimeFace Screaming In Fear...And Bill/trudeau: as you are so busy working out this, please do not forget to sprinkle some presents for your families. This whole small business thing is less and less worth it to loose your family over it. Justin, maybe you could give them some trustlets, each containing one room Face With Stuck-out Tongue And Tightly-closed Eyes

This whole change thing was screwed up because of the bad communication. They have resolved that: there is no communication whatsoever nowSmiling Face With Open Mouth. It will certainly be a christmas surprise for all business owners. We will all receive a gift box wrapped in liberal red tape containing the new T2 Sch9999 with a $200k cover letter : aggregation and allocation of investment income over $50000 between related CCP corporations not placed in offshore trusts....
Deal Addict
Apr 2, 2008
1081 posts
179 upvotes
Doctors will just have to tough it out until the next collective agreement renegotiation. This time around there will be fee increases and the additional cost will be covered by provincial government.
Member
Apr 14, 2015
495 posts
111 upvotes
Tsuu T'Ina, AB
Sebastian6300 wrote:
Dec 6th, 2017 12:16 am
There is an article in the G&M about the rush to implement the rules before Jan 1..I seriously doubt that in 14 working days left ( I take boxing week out) we will see the announcements, especially if morneau resigns...Public service seems to be too busy trying to get paid ( fixing Phoenix)...
This is unprecedented: to have changes so deep published so late....Not sure if trudeau and his liberals will ever start to govern...all this flashy travel and selfies and socks...
All they do is announcements, PR....but producing something...that is not happening...
It sounds like some people are afraid that the actual rules won’t come out until the budget in the spring, but they will be effective January 1 as previously stated.

What? You think a government who doesn’t recognize integration will shy away from what is effectively retroactive taxation? I don’t!
Deal Addict
Apr 2, 2008
1081 posts
179 upvotes
Operatime wrote:
Dec 6th, 2017 2:59 pm
It sounds like some people are afraid that the actual rules won’t come out until the budget in the spring, but they will be effective January 1 as previously stated.

What? You think a government who doesn’t recognize integration will shy away from what is effectively retroactive taxation? I don’t!
The changes about income splitting can't be applied retroactively.
Sr. Member
Nov 13, 2013
760 posts
255 upvotes
OTTAWA
Jermyzy wrote:
Dec 1st, 2017 4:07 pm
Will obviously wait for the 2018 budget before making any major moves, but I've already switched most of my index funds into swap-based ETFs. HXS, HXT, HBB were already core holdings, but i've switched my international index fund to HXDM (a new international swap-based ETF). Going forward, I will probably hold most ofmy dividend-paying stocks in my registered personal accounts, and will hold mainly stocks with no distributions (e.g. BRK.B) in corporate investing account. I may draw a little more salary to max out my RRSP/TFSAs. So I'm thinking overall I might actually pay less taxes, so technically these new rules may not impact me as much, but the extra administrative work will not be welcome.

I suspect that similar to how the increase in personal taxes led to a decrease in tax revenue, these new tax proposals will not bring in nearly as much revenue as the government is forecasting. But will cause much unnecessary headache for many of us. As described in my previous post, the number crunching shows that even with the "favorable" tax treatment for corporations/ccpc, we may actually be financially disadvantaged compared to salaried employees. Hopefully there will be further changes prior to the budget being introduced.
I am also a big fan of swap-based funds. Especially useful if your income is variable as you book the gains in a low income year. I fear they are the next target though so no need to tout them too loudly. If they get too popular could be next on the hit list. From an objective point of view they should be prohibited as their sole purpose is to reduce tax.
Deal Addict
Feb 9, 2009
4659 posts
2338 upvotes
Sebastian6300 wrote:
Dec 6th, 2017 8:21 am
I really hope they will get this right. Will we probably have to fill out forms allocating the 50k business income between the related corporations? Probably yes...otherwise we just can start another corporation Smiling Face With Open Mouth
I am afraid doctors will start several companies, one for leg injuries, one for hand injuries, ...you get my point. Dentists will have one for molars, one for front teeth, Smiling Face With Open Mouth And Smiling Eyes. IT workers will create more then 1 companies: one for design, one for development and one for maintenance.

Then all the dividend top-ups..Maybe this extra 73% taxed income will have it's own top up rate? And tax credit?
Those who have cottages in numbered corporations, will divide up the rooms between the different companies. Will see names like The Laurentian Living Rooms co...
By the way morneau: no pressure there are 13 days left, hope phoenix can handle overtimeFace Screaming In Fear...And Bill/trudeau: as you are so busy working out this, please do not forget to sprinkle some presents for your families. This whole small business thing is less and less worth it to loose your family over it. Justin, maybe you could give them some trustlets, each containing one room Face With Stuck-out Tongue And Tightly-closed Eyes

This whole change thing was screwed up because of the bad communication. They have resolved that: there is no communication whatsoever nowSmiling Face With Open Mouth. It will certainly be a christmas surprise for all business owners. We will all receive a gift box wrapped in liberal red tape containing the new T2 Sch9999 with a $200k cover letter : aggregation and allocation of investment income over $50000 between related CCP corporations not placed in offshore trusts....
I agree. Though some dentists with multiple locations could technically have a corp for each location to mitigate risk.
Member
Jul 20, 2017
322 posts
68 upvotes
Jermyzy wrote:
Dec 1st, 2017 4:07 pm
Will obviously wait for the 2018 budget before making any major moves, but I've already switched most of my index funds into swap-based ETFs. HXS, HXT, HBB were already core holdings, but i've switched my international index fund to HXDM (a new international swap-based ETF). Going forward, I will probably hold most ofmy dividend-paying stocks in my registered personal accounts, and will hold mainly stocks with no distributions (e.g. BRK.B) in corporate investing account. I may draw a little more salary to max out my RRSP/TFSAs. So I'm thinking overall I might actually pay less taxes, so technically these new rules may not impact me as much, but the extra administrative work will not be welcome.

I suspect that similar to how the increase in personal taxes led to a decrease in tax revenue, these new tax proposals will not bring in nearly as much revenue as the government is forecasting. But will cause much unnecessary headache for many of us. As described in my previous post, the number crunching shows that even with the "favorable" tax treatment for corporations/ccpc, we may actually be financially disadvantaged compared to salaried employees. Hopefully there will be further changes prior to the budget being introduced.
I wonder how do you invest in BRK.b...the brokerage fees for converting to and from US $ seem crazy...

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