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How recent tax changes impact professionals and professional practice owners

How recent tax changes impact professionals and professional practice owners

Synopsis
3 Minute Read

As a Canadian professional, you face income taxes both personally and professionally, thus needing to stay up to date on the evolving tax landscape. This insight summarizes a recent webinar, highlighting the following points:

  • The latest updates to taxation rules and regulations
  • Tax planning considerations for you and your practice
  • Strategic tax planning when selling your practice
  • How CDAP can help professionals

Effective planning and consultation with a professional advisor are crucial to maximize your after-tax benefits and ensure a smooth transition in the evolving tax environment.

Partner, Taxation Services

Federal Government Announcement Monday, February 19, 2024

The Canada Digital Adoption Program is fully subscribed and no longer accepting new applications for the Boost Your Business Technology grant. MNP Digital remains committed to supporting your digital adoption goals, view our SMB solutions for more information.

As a professional in Canada, it can be challenging to keep up with the ever-changing tax landscape. To help you stay informed, we recently hosted a webinar providing valuable insights into the latest tax developments affecting professionals like yourself. You can catch up by watching a recording of the session below that includes an overview of the current mergers and acquisitions market — or continue reading for our summary of the most important takeaways.

Proposed tax changes for 2023 and 2024

General Anti Avoidance Rule (GAAR)

Canada’s General Anti Avoidance Rule (GAAR) aims to prevent potentially abusive tax planning by scrutinizing transactions that challenge tax rules contrary to their intended purpose. Starting from January 1, 2024, the proposed legislation revisions set a lower bar. The onus will now be on you to prove that obtaining a tax benefit wasn't the main purpose of your transaction.

While intentional planning options such as Tax-Free Savings Accounts (TFSAs) remain exempt from GAAR assessments, be cautious about certain previous planning strategies targeted under the revised legislation. Penalties can include a 25 percent penalty on the tax benefit and an extended reassessment period of up to six years unless the transaction was previously disclosed to the CRA.

Alternative Minimum Tax (AMT)

The 2023 federal budget proposes changes that may directly impact you if you realize a significant capital gain, sell your business with a lifetime capital gains exemption, or plan substantial charitable giving in 2024 and beyond. These changes may create additional upfront income tax based on the alternative calculation and the changes in the calculations.

Trust reporting rules

UPDATE: March 28, 2024 — The CRA updated its T3 Guidance at 2:30pm ET today to provide all bare trusts with an exemption from the requirement to file a T3 return for the 2023 tax year, unless the CRA makes a direct request for these filings. If you have a trust it will be important to determine if it is a bare trust or express trust — we recommend that you connect with your MNP Advisor to confirm your filing requirements and to clarify any impacts to your 2023 T3 filing. 

The 2018 budget introduced tax changes requiring more trusts to file T3 returns, disclosing detailed information about the parties involved. These changes will affect trusts created years ago that were previously exempt from annual filings. The new rules include extended requirements for disclosing individual information about trustees, beneficiaries, settlors, and parties influencing trustee decisions.

Bare trusts, involving a separation of legal and beneficial ownership, are now required to file returns. This affects various legal arrangements, including real estate, partnerships, and assets for which individuals or corporations may have been added to the title for legal purposes only. Ensure you review your trust structure to determine your filing requirements as significant penalties apply for missed filings. If you need assistance, reach out to your MNP advisor for guidance.

Tax planning considerations

Immediate expensing

Immediate expensing allows for a full deduction of depreciation on newly acquired eligible property, including equipment, furniture, leasehold improvements, and computer hardware and software. Ensure the property is acquired and available for use before January 1, 2024, with a maximum limit of $1.5 million per taxation year for you and any associated group of companies.

Estate planning

Estate planning goes beyond a simple will. It involves careful business succession planning and asset protection. Essential legal documents like wills and power of attorney should be part of this process, overseen by your lawyer and MNP advisor to mitigate potential tax implications.

Sale of your professional practice

When considering the sale of your professional practice, you have various potential purchasers, including associates, family members, or external investors. The sale structure impacts the overall tax implications and after-tax cash, whether a share sale, asset sale, or combination of these options. Earnouts can also be included to secure additional proceeds based on future performance. Ensure the sale structure maximizes your after-tax cash proceeds.

Evaluate whether you and your family qualify for the lifetime capital gains exemption, considering the 2023 limit is $971,190. Test your current corporate structure and assets to ensure you qualify for the exemption. Transferring most assets well before the sale can help avoid immediate income tax implications, but some assets, like life insurance, may require additional planning due to valuation and income tax complexities.

Canada Digital Adoption Program

The Canada Digital Adoption Program (CDAP) has emerged as a significant initiative available to help small and medium-sized businesses adapt to an increasingly digital-first business landscape. This program offers a grant of up to $15,000 to help you retain a digital advisor who will help you plan your transformation journey.

It also offers up to $100,000 in interest-free loans to help you purchase the necessary software, hardware, and equipment to put those plans into action. The right digital transformation strategy can help you streamline operations, enhance client experiences, and improve overall efficiency.

Contact us

To learn more and discuss how these considerations may impact you and your practice, contact Nicholas Talarico, CPA, CA, Partner, Taxation Services.

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