Happy Holidays and Update on Proposed Tax Changes

Today is December 22!  9 days before end of the year.

We spent last week “vacationing” on a cruise with two young kids, my mother in law and our Italian mother Maria.  

We booked this cruise a year ago when Erwin and I were away on our own.  We enjoyed the sister ship so much that we would want to come back a year later.

We are deals shoppers.  When we were offered the “kids sail for free” discount, we quickly jumped on it!

Without this offer, we would have to pay for their cruise tickets individually.

For this trip I had envisioned that I would be able to drop the kids off at their fun filled kids zone, where they have other kids and professionals to care for them. Erwin and I could sneak off for a couple of hours to the gym.

Little did I know I signed up for two sick babies. One wouldn’t even let go of me 90% of the time.

I had two nights that I was not able to sleep through the night.  ☹

One night at dinner time, I needed to go to the bathroom.  I walked out without taking any babies with me.  I came back to two loud crying babies literally five minutes later.  ☹

Needless to say, they refused to go to their little play areas.

Most parents can relate, I really need another vacation after this one.

The silver lining of the story is that I do have two kids who love their mom dearly.  I’ve heard it too many times when families hire a nanny to care for their young children, the children are way more attached to the caregivers than the parents.  Definitely not in my case. 😊

While I was enjoying my “vacation” last week on a cruise, our Finance Minister, Bill Morneau announced the details on how his government is going to implement the proposed tax changes on dividend sprinklings, fewer than 3 weeks before these new rules kick in.  

Parliament doesn’t even get to go through them by the way.

Senate national finance committee thought that the government should scrap the proposal.  Even if the government decided to go ahead, we should still wait for another year.  

I guess these recommendations from the Senate national finance committee never made it to Bill Morneau.  Just like all other opposing voices, it never really makes it to him.  

In his latest proposals, he offered three groups of people to get out from the income sprinkling reasonability test.  

1. A spouse who’s over 65
2. Someone who’s 18 that works for at least 20 hours per week in the business (providing substantial labour contribution)
3. Taxpayer is over 25, owns more than 10% of the business and the business cannot be generating its income from the “provision of services”

If your spouse/kids are doing bookkeeping and administrative work for the business over 20 hours a week, no reasonability test is applied.

If your spouse is over 65 and receiving the dividend, no reasonability test is applied.  Thank goodness, our seniors can have money to retire.

If your low income family members own more than 10% of the shares AND are over the age 25, they are also not subject to the reasonability test.

There are ways out but planning is the key.

What’s the silver lining of all this?  At least there are 9 days left for you to make changes to your tax planning!

Until next time, Merry X’mas and happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

Your Real Estate Accountant