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Budget 2017: What You Need to Know as Small Business Owners & Real Estate Investors

This week marked the completion of our Crossfit Open 2017.  It’s my first time participating in it and it was a lot of fun.

I mentioned in my last blog post that I belonged to this 18-34 age group, mixed together with the best athletes in the world.

By the way, the top athletes in the open competition will go to Regional and then the best will be competing in the Crossfit Games later this year.  Winners are named “Fittest man/woman on Earth”.

I ranked … exactly 79.4th percentile in my group.  The bottom 20%.

I am extremely proud to come this far, even though my ranking is at the bottom of the group.

In the video to the right, I had to do some skipping at the Open Workout 17.5. After seeing mommy skipping, Robin was trying to skip as well. 🙂

I gave up early in my life to learn any sport, worrying that I couldn’t be better than anyone else.  I was used to being good at school, which I was content with because failing anything else felt like too much of a risk.

Being a mom is the biggest life changing experience that I have had in my life.  Like many parents, I don’t want my children to experience the same feeling of inadequacy as I once did.

Not being afraid to fail and believing that it’s never too late to start are something I want to instill in their little minds.

And of course, staying active and exercising often are the side benefits when I decide to take on Crossfit on a regular basis.  #LeadByExample

Aside from finishing the Open, it was also our big Federal Budget date last week.

Budget 2017 has a title called “Building a Strong Middle Class #Budget 2017”.

It’s funny how they titled it this way, yet it’s difficult to find anything in their budget that really benefits the “middle class”.

There are some changes or lack thereof that are worth noting:

  1. No change to capital gain inclusion rate The rumor was that capital gain inclusion rate would be increased in Canada before budget.Currently capital gain inclusion rate is 50%.  Meaning if you sell a capital property for a profit of $100,000, only 50% is taxable, i.e. $50,000 taxable.There were multiple speculations that the government was considering to increase this “inclusion rate” to a higher percentage. This means that instead of 50%, it could be 75% or 66.67%, whatever the Big Brother would decide.This would have had a huge impact on all real estate investors, especially the ones that are in long-term buy and hold strategies.Instead of $50,000 taxable capital gain in my example above, it would then become $75,000 or $66,670 taxable income.

    Thankfully, this didn’t happen and we will hold our breath until next budget date as our real estate market continues to thrive.

  2. An additional $523.9 million over five years will be spent to prevent tax evasion

    I was doing a presentation the other day and one guy in the audience came up to me and said his accountant told him that CRA had cancelled their plans to focus on real estate investors because the return was too low.Let me reassure you, real estate investing and small business owners are making money.  CRA is going after anyone that’s making good money.Although I can’t tell you how much of this $523.9 million will be allocated specifically to real estate investors & small business owners, they are tightening everything up to make sure that taxpayers are paying their “fair” share of taxes.According to CRA’s website, they had already recovered over $240.6 million between April 2015 and December 2016 in Ontario alone from real estate investing.I can tell you that they will continue to work on the real estate investment sector as more people are diving into this investing world.

    What about small business owners then?

  3. Tax planning using corporations

    If you have followed my blog posts long enough, you would have read this other blog post called “How The Rich Get A Lot Richer”.Small business owners can earn their income through a corporate structure and split income with their low-income spouse and family members.In the government’s eyes, this gives them an unfair advantage compared to people who have jobs.Small business owners also invest within a corporate structure using the higher after tax dollars available to earn passive income.  (This is exactly why we recommend all small business owners to buy real estate properties in a corporate structure.  )Again, giving small business owners an unfair advantage over those who work as an employee.Instead of giving a tax cut to middle class, government now proposes to review the current tax regime and come out with a plan later this year to target the abuse of the system.

    Nobody really knows what they will come up with but let’s hope that it’s not something that will discourage the small business owners to create jobs and continue to contribute to the current economy.

    Unfortunately no direct benefit will be given to middle class, but it just make it more expensive for small business owners to operate.

  4. Eliminating the public transit tax credit after June 30, 2017

    The introduction of public transit tax credit was to eliminate greenhouse gas emissions by encouraging people to take public transit.Many middle class taxpayers did take advantage of this tax incentive and benefit from using the public transit infrastructure.But to be honest with you, if I drive everyday to work, I probably wouldn’t really be motivated to make a switch to the public transit system because of a couple hundred dollars of tax credit.It isn’t achieving its original purpose but it did benefit many middle class taxpayers who were using the public transit system to begin with.But starting June 30, 2017, the credit is eliminated.

There are still a few changes announced last week including simplifying the disability tax credit and caregiver credit, expanding the qualification criteria for tuition credit and medical expense credit.   The Government will also continue to crack down on international tax evasion.

But none of these is really making a strong middle class.  It’s a great title, but the budget lacks the substance to support it.

Until next time, happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

Your Real Estate Accountant

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