Episode 65: Tax Policy Changes | Booyah

Colin wants to tell you about some relevant tax policy changes...for...entertainment? Apparently? Some changes were announced in February, and some things are lurking...you should know about these things. So we're gonna tell you and be interesting at the same time. It's a tall order, but the guys are up for the challenge. Joint bank account with a parent or kid, for convenience? You might want to pay attention to this week's episode of Barenaked Money.

What is Barenaked Money?

Slip into something more comfortable and delve into personal finance with Josh Sheluk and Colin White, experienced portfolio managers at Verecan Capital Management. Each episode demystifies complex financial topics, stripping them to their bare essentials. From investment strategies and financial planning to economic headlines and philanthropic giving, delivered with a blend of insight, transparency, and a touch of humour. Perfect for anyone looking to understand and navigate their financial future with confidence. Subscribe now to stay informed, empowered, and entertained.

Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada except Manitoba.

Speaker 1:
You're about to get lucky with the Barenaked Money podcast, the show that gives you the naked truth about personal finance with your hosts, Josh Sheik and Colin White, portfolio managers with WLWP Wealth Planners, iA Private Wealth.
Josh Sheluk:
Welcome, everybody, Josh and Colin here, and I have absolutely no idea what Colin is talking about today.
Colin White:
Well, Josh, there's many of our podcasts that I've got no idea what you're talking about. I guess the difference that age teaches me, so I don't say that out loud. I struggle hard to catch up part way through, but I am going to ask you to pick up your energy level, because I'm talking about income tax today. If we don't have a little bit of enthusiasm in our voices, then people will definitely fall asleep. Can you bring us a boo-yeah?
Josh Sheluk:
Boo-yeah.
Colin White:
There we go.
Josh Sheluk:
That's what you're looking for?
Colin White:
That's what I was looking for. Perfect.
Josh Sheluk:
Well, income tax gets me fired up, so I'm ready to go.
Colin White:
Well, we're going to do our best to make this timely and interesting. Now, again this is going to come with an extra, extra disclaimer for me. This is not advice. This is for entertainment purposes only. If you happen to pick information [inaudible 00:01:17] ask either or somebody a direct question about your situation, then I'm going to call that okay. But, don't take any of this as the complete story on any of these topics. We're going to hit a few different things that have gone on and preface things with, here's how you should consume information. Here's what you can do with it, and here's what you can't. All right? Think was a complete enough disclosure disclaimer, Josh?
Josh Sheluk:
Yeah, I think so. I think so. Well, you did tell me before that we were talking about tax today, so I did come prepared to talk tax. So, I'm looking forward to this.
Colin White:
All right, there you go. See that? That's more enthusiastic, although if you could pick it up in your voice a little bit, that'd be great too. So, I took a two day tax seminar here earlier in November and sat down. I got an update on some current topics, and there's some other things out there that are kind of working. There's some stuff here to learn. So, I wanted to bring some of it forward. One of the things that was announced in February this year, 2022, was a change in reporting requirements for bare trusts. Now, that's a fairly technical term, but it can affect a lot of people.
Now, the problem is when legislation like this gets introduced in draft form, nobody really knows what they're talking about. So, we were left the whole year to try to figure out, what are they talking about? Some of the commentators who are getting down to, hey, if you've got a joint bank account with somebody, that could be considered a bare trust. The consequences is that you could end up having to file a tax return basically on that trust and have to do certain disclosures that never were the way. The government is aiming at a whole bunch of people who are trying to take a shortcut, whether that's putting somebody's name on a property or holding assets jointly to avoid taxation or avoid probate, all of these little unofficial things that people do, and it's problematic.
So, this draft legislation that was put in this year basically had a ticker that was running down, because if you had any form of these kinds of trusts, you could be, based on interpretations that weren't provided yet, you could be on the hook for having to file it a T3 return or T2 return. There are a whole bunch of things that could come out of this. So, people were getting a little antsy. But, behind the scenes, there was a whole discussion going on. I happened to be on course when this Bill C-32 came out from the government, which delayed the implementation of this by a whole year.
Oftentimes, when stuff isn't never going to be enacted, it gets delayed a year and then just kind of magically dressed away, because there are problems in the requirements here. But, even though it hasn't happened, there's a couple of instructive things to take from it. Number one, the government is watching. They're taking a look at little tricks that people are using to avoid current tax other things. From time to time, they're going to go after, close these holes, or make them less interesting, the same way that they went after family trusts and kiddie tax where people were raising their kids to split income tax. There's things like that that they've gone after. Anytime you can say, "Hey, listen, I'll just do this, and I'll avoid tax, or I'll avoid probate," that can be a target, and they will go after. Now, they may or may not be successful.
The other thing that's instructive from this is you can see that the government announces it far as a budget update goes, and then draft legislation gets released. Behind the scenes, there's a whole bunch more activities. The Department of Finance tries to codify it into something that's actually usable. This is the point where a lot of the lawyers went after the government's particular issue talking about privacy, because there are privacy concerns about beneficiaries of trusts and how to properly disclose that, who things can be disclosed to. So, turned out it was a little bit more complicated than perhaps was imagined. Sometimes, these things get announced, and when it goes into effect, could be completely different. Because, even after the Department of Finance actually comes up with something that's readable, CRA has to come up with an interpretation.
So, there's a bunch of steps. So, things can change quickly is one learning thing from this. The government has eyes on all the little things that people are trying to do to avoid things. If you're doing something to avoid something, there could be a target on it. The way that it dealt with can be uncomfortable. If you have property to sell jointly or things of that nature, that's sometimes difficult to undo. So, you may take a path forward that is open to things changing like this. So, just again, be a little bit careful about these things. So, that probably was completely off of your radar, was it not, Josh?
Josh Sheluk:
Well, only on my radar because you and I had talked about it before after your seminar there. Now, for the listeners, maybe explain a little bit about what a bare trust is or could be.
Colin White:
Well, yeah, and again, we're getting a little bit out of my depth here, but basically, they were going after things like putting additional names on accounts. That's a form of trust, so you're holding ... You've got an account set up for your kids. It's a trust for your kids, but there's not a formal trust. It's just listed on an account that this is a trust for a child. That does not have all of the elements of an actual trust. So, therefore, it gets classified as bare trust.
Josh Sheluk:
Yeah, so for example, let's say you and I are married. Nice, lots of fun, I'm sure.
Colin White:
Don't be judging.
Josh Sheluk:
Yeah, we have a child, and we want to put that child as a joint owner of our bank account, so when we pass away, that money will pass directly to that child. That's one example, a very basic example.
Colin White:
And, it's not clear whether this legislation would affect that particular arrangement, because it never got to the point of having any of the actual rules and regulations. So, it was just announced at this 30,000 foot level without any of the details. Those two examples that you're talking about, those were examples that were put forward by practitioners, saying, "Is this going to be affected?" If so, that's a big deal, because there was no clarity. This is how new tax legislation is built. It is one of the examples that I was throwing.
Josh Sheluk:
Yeah, so in our world, the way that we see this come into place potentially, again we don't know exactly how they're going to define this stuff, but some elements that we think might be affected if they passed this legislation would be, like I said, joint bank accounts, joint investment accounts. Putting a child or adult child as a part owner, a co-owner of a property, I guess would be another. These are the ones that come to mind, and mostly in my mind to bypass probate, as opposed to bypass income tax, but-
Colin White:
Or, some people think they're bypass income tax, but we've already seen cases, because again, the courts have held that a joint asset needs to be defined as to what it is. Because, sometimes you put your kid on your bank account just so that they can handle your affairs for you while you're alive. It's not a pre-inheritance. It was not designed as such, so there has been some back and forth. Again, this is not concrete. This is just highlighting a risk as to whether that's going to be treated as a pre-inheritance in a court or whether that's treated as something that ends at death. Whenever you're doing these little shortcuts that you think are getting around things, there are legal aspects of it to be careful of and income tax nuances to be careful of.
That can change, and I want to skip right to the end, because the final point I'll make to everybody is there's a difference between making an election on your tax return this year that is based on a current interpretation that may or may not be challenged. It's safely in a gray area, or enacting, putting as giving up ownership of an asset to somebody else. Because, it's tougher to undo that. You can change from year to year how you file a tax check. You start changing ownership on things, you're giving people or either implicit or explicit rights. Now, you've got something that's difficult to undo. Again, we've had the situation where someone puts their kid on a property and comes back next year and goes, "Oh, things have changed. I want to take it back from them." Or, "We're not really talking right now. I'd like to give this to another kid." Well, good luck. There's legal ramifications of these things, too.
But, I just wanted to highlight that. Again, there's a few examples based on a seminar I attended and some other stuff that's going on where they're targeting these things that people are just ... Oh, this is an easy way to bypass probate or an easy way to maybe avoid income tax or these kinds of things. Some of them are in the targets, the sights of the new legislations coming out. This particular thing has been kicked down the road, and it's been kicked down the road long before it ever got to the point where we really understood what it was for. But, it could generally be coming for some of the things we talked about, and I think some of the things people choose to do.
Josh Sheluk:
Yeah, they're watching, I guess you're saying. If you just look back at the last 10 to 15 years of tax code changes, they're just slowly closing the loopholes, and not even loopholes. They're just some ability to split income or defer income or move it from one bucket to the other, things that are going to help you from a tax perspective. These are slowly going away. They're slowly whittling these down, and it's been frustrating for a lot of people, I think, so just something to keep in mind, as you said, as people go down these planning paths.
Colin White:
Well, yeah, if you're using an RRSP for tax deferment, that's what they're saying. Put money in an RRSP, and you pull it out, and it's taxable. That's what they're designed for. You get into using it into things they weren't designed for, enough people do it, and that's going to attract the attention, right? Because, again, aggressive tax law is always going to be a thing, because there's a marketing for it. There's a lot of people out there who ... Let's be as aggressive as we can with this. And, there's professionals who will aid them in being aggressive. That's where things like this come.
So, they're saying, "Hey, there's too many people planning this way. It's a detriment to the system. It was not things that were intended, so we're going to fix that rule." The kiddie tax is big one. A lot of people spent tens of thousands of dollars putting family trusts in place just to be able to share income with their kids. Again, the government said, "That's not legit. We don't want you working as a dentist and having part of that money go to your 12 year old kid in a zero tax rate. That's not what we expect. That's not how the tax system has been designed." So, boom, here comes the kiddie tax to see and other things about income splitting. There's other hurdles there, but this is one that actually you and I locked a little bit. Next one, Josh. Are you ready for the next thing?
Josh Sheluk:
I'm excited.
Colin White:
First time home savings account.
Josh Sheluk:
Oh, boy.
Colin White:
No, no, no. Again, but it's funny. This gets announced. All right, so this was announced in the 2022 budget. Now, again, when it's announced in the budget, it's not a thing yet. It's just an idea. It's almost like that whole thing about how a bill is born in the US, back when we used to watch Saturday morning cartoons, which I know Josh never saw. But, this is just an announcement that's made. So, there's been some lore that was part of the bill on C-32 that came out in November that was talking about this bare trust issue. So, they put some more color around it that adds a few more ... a little bit more to it. Basically, this is in addition to the RRSP home buyer supply. This is a first time home buyer savings account that you can put up to $8,000 per year in, and it's calendar year based. So, it's a little bit different than RRSP, up to $8,000 a year, maximum $40,000. And, you can pull it out tax free to put towards a house.
Now, there's a lot more rules to it than that, but that's generally what it's. This was announced in the 2022 budget. They're now, I want to say hoping that they'll be available by April of 2023, because they have not provided any of the institutions nearly the information needed to put these accounts together. This is something that they're going to need cooperation from institutions to pull together, because there's a bit of a history. There's registered disability savings programs that are only available for a handful of providers in Canada. So, it's a government program that was announced. It's in effect. You have a right to have one, but not every institution operates them, because honestly, there's not really all that much incentive, right? Because, you're looking at that an account that's got a maximum $8,000 contribution and maximum of $40,000 in contributions, relatively short time horizons for people that is typically saving to buy a house.
There's not a whole lot of profit margin in that kind of account. So, it'll be interesting to see how many institutions actually are willing to provide something like this. Again, the government announced. I think that was maybe a lot of votes. We're talking about making home buying more affordable. Now, people can't afford buying houses. Well, we just launched this new savings program. Oh, my god, that's amazing. No, it's not that amazing. It's on top of other programs that are up there, but the most recent disabilities, they're hoping that by April of next year, that maybe some provider in Canada may be in a position to offer one to you. But, it's still not. Again, they announced it in the budget. That doesn't mean you can call me up the next day, as some people did, and say, "Great, I want one of these." That's not how. If you take nothing else away from this podcast, take that. When this gets announced from the budget, it's not immediate, not even close. There's a whole bunch more steps in that to have. So, that was an update on all of our savings programs.
Josh Sheluk:
I'm going to go a little bit further and say, not only is this not amazing, I think it's dumb, the way that they've tried to implement this. Now, refresh me, is it your contributions to this first time home savers account, whatever they call it, is it ... You get a tax deferral from the contribution that goes in?
Colin White:
No, it's a tax break. No, I think this has come out in details, Josh. This has changed, so it's a deduction going in. It's tax free coming out. So, you basically are sheltering up to $40,000 every-
Josh Sheluk:
Yeah, so my thing is not that the principle is dumb, but the way that they're implementing it, I think is stupid. Because, why not? You already have a home buyers plan as part of an RRSP, and you get a deferral for money that goes into an RRSP. So, why not just make it part of that and make all of our lives a little bit simpler? People probably don't understand when we are trying to distinguish the different account types that we have. At our firm, they use different letters of the alphabet to distinguish the different account types.
It goes all the way from A to Zed and into numbers. So, we have 30 account types, something like that. They're just adding another one on top of it, that as you said, is something that's going to be very temporary, specific to a very small number of people that are out there. I understand the financial institution's perspective as well, because they have to report on all of the contributions, all of the withdrawals to the CRA. CRA has to track this. We have to understand where they're going to be tracking that. We have to be able to keep tabs on it. What a nightmare, what a nightmare. You already have RRSPs and TFSAs. You can use both of those for this purpose already. Why not implement something intelligently within the construct of those two accounts that we already have?
Colin White:
Because, it gets them fewer votes, Jeff.
Josh Sheluk:
Well, yeah, and I knew you were going to say this. I knew it was a rhetorical question, Colin.
Colin White:
Sorry. It was a gag reflex. I had to say it out loud. You're right, because we give out the street home buyer plan, and now all they needed to do was to make that not a taxable withdrawal and with no requirement to repay.
Josh Sheluk:
Exactly. You don't have to repay it.
Colin White:
And, you get to the same place.
Josh Sheluk:
You don't have to repay it.
Colin White:
You get to the same place.
Josh Sheluk:
Done, thank you.
Colin White:
Listen, I am with you. I agree with you. This is what it takes. Keep your energy, Josh. You keep growing, but you've only got a monster that doesn't care.
Josh Sheluk:
Yeah, just introduce something else that was a stupid policy decision for me, and here we go.
Colin White:
I'm glad you asked, because I'm going to talk about the advanced life deferred annuities that were announced in 2019. So, in 2019, the government announced a new product, advanced life deferred annuities, because typically you cannot purchase annuities beyond a certain age with most carriers. Now, what the government felt was that that put people in their 80s at risk of running out of money. Therefore, they made a provision that you could purchase an annuity at age 85, which is so generous of them, seeing as though they're not in the market of providing annuities. So, they made this announce in 2019, and it's been crickets. It's been crickets. I actually went back and took a look at how often people were writing about this, and it's not that often. It was in the 2019 budget. It received royal assent in June of 2021, which is pretty much as far as the government can go with me.
But, there's no product. I tried. I went looking actually as recently as today to find a company that was actually offering any kind of product in this space. Again, it was announced in a budget. It took two years for it to receive royal assent, and it has currently, based on my research, and it may not be exhaustive. Maybe someone will correct me in the comment section. There is something out there. I don't think it has all that much of a planning benefit, because again, people, once they get into their 80s, annuity products ...
Now, interest rates have changed. There's mortality to be concerned about. I'm not sure of the efficacy of this particular product or if the companies will ever come out with something. But, it is, again, it's an example of, and this is the whole point of this podcast, is to talk with some different tax initiatives, the amount of time from the budget announcement to actual enactment to actually being available to the public. This one, currently I'm scoring as if it is available, it's very, very quiet, because I can't find it. Have you seen an advanced life annuity anywhere, Josh?
Josh Sheluk:
Well, no. I think it was last week, I saw something come across on a headline, where is the ALDA now, advanced life deferred annuity? I didn't read it, because I was like, "Well, it's nowhere, because I haven't heard of it in three years." But, yeah, so just to be clear, you buy this annuity at whatever age with your RRSP, and it starts paying you at 85. I don't know. How does that make sense? I'm not really sure. I guess if you're super concerned about longevity, living to 100, then yeah, it could make sense. But, it seems like there's better ways maybe to tackle that than buying something that starts paying you after your average life expectancy is supposed to be up.
Colin White:
That's just it. They're addressing something that's real. By the time you get to that point of your life, a lot of people are very vulnerable and perhaps not rationally concerned about having enough money. This is a way to give somebody a blanket and say, "Listen, you know what? We can do this, and it's an annuity. Let me pay you as long as you're alive." But, again, I think there's other ways to answer that concern. Again, that's something else that was trotted in public without, I want to hazard a guess, without sufficient support from industry saying that they can actually put together a product that does this in any kind of a reasonable fashion. So, again, there's a lot of circles that have to get closed before something becomes an actual planning thing.
Josh Sheluk:
Yeah, I have no doubt they could put together a product that does this, but is the appetite there? Is it marketable?
Colin White:
Well, and how attractive is it going to look? What kind of payments can you ... Compared to the alternatives, what assumptions would you have to make in order for the annuity to make sense compared to other options that are already in the marketplace? So, there's a whole bunch of things that play out.
Josh Sheluk:
Yeah, I guess if I'm putting my industry hat on, I'm just thinking it's maybe hard to convince a 65 year old that, hey, we're going to take a lump sum from you right now. We'll start paying you, excuse me, when you're 85. How does that sound? Okay, not very good. You already have people trying to accelerate their CPP and OAS as quick as possible, because they're worried about getting their pound of flesh from the government after paying in all these years. So, it seems unlikely that there'd be a big market for something like that.
Colin White:
So, if you read about it and you want to make it part of your plan, not yet. You're going to have to wait a little while longer. Let's move on, because another one of the announcements that's come out this year, you're going to notice a little bit of a theme, a lot of what they're talking about, split housing. So, this is going to change in ... I'm not sure if it's just a change at the administrative side of CRA, or whether there's legislation going to change this. But, basically if you hold a house for less than one year and you sell, you don't get any capital gains. It's all considered business income. So, they're going after the house flippers. Again, if you're flipping out, you're not going to get preferential tax treatment. Again, this is from a policy perspective, they're trying to slow down the housing market. This is something that most of the population is not going to have a problem with.
See, this is the other thing. They can make changes like this and piss off a small number of people at a very high level. That's good, because democracies are fine with that. They just don't want to off a lot of people. So, the changes tend to be a little bit more focused. Honestly, yeah, if you buy and sell a house within a year and try to claim a capital gain on it, no, that wasn't a capital again. You're just able to flip, because your expenses in doing the work are 100% deductible and trying to pay only 15% tax on the other side. That's not what was intended. But, again, that's just been announced. I don't know that it's been enacted. I don't know if CRA is going to be treating it that way right away, but they're going in that direction. So, if you're in that space thinking that you've got away with something, you're really, really smart, that's so cute. They're on their way. Just check outside your door. There's a black Suburban parked there right now.
And, a connected story to that, there was a Supreme Court of Canada case where CRA gained access to the records of the home building supply places. So, they can go in and take a look for, hey, John Smith has been buying hundreds of thousands of dollars worth of building goods, but he's not reporting any income. I wonder what that's about. So, they gained that ability now, which they intend to use, because again, this is all connected to the narrative of trying to get a control over housing prices, making sure that the government does this piece of the revenue that's going on. Another-
Josh Sheluk:
Question for you, Colin, just on that before we move on, because it seems very maybe focused on short-term capital gains, that housing change. Now, south of the border, they actually have a different tax rate for short-term capital gains than they do for long-term capital gains. I think they delineate that at a one year holding period. Have you ever heard that floated here in Canada? Because, I have not. But, when I started hearing you talk about that housing change, I wonder if that could be down coming down the pike at some point.
Colin White:
I was today years old when I heard that. This is the very first time. I did not realize the US had that in their tax. I thought you were going down the road how interest is tax deductible in US mortgages. So, there's some very significant differences between the two sides. But, there's been more conversation over capital gains inclusion rates. That's going to go up for the last 20 years now, because everybody's afraid of that, but I have not heard-
Josh Sheluk:
We're going to strike this from the records and just erase it all, because I don't want to give them any ideas. Short term capital gains, strike this from the record.
Colin White:
I don't want to pop your balloon, Josh, but they're probably not listening to you. I don't think that you're quite the magnitude that could influence that kind of thing just yet.
Josh Sheluk:
Well, if they were listening, me calling them dumb a couple sessions ago probably ended it there anyway.
Colin White:
Yeah, yeah, or you've got an audit coming away, one or the other. So, there's another tax court cases that's played out in the Supreme, and it's interesting, because it's not directly at the tips for waitresses and waiters. But, it's in that space, which is probably going to cause some knock-on effects. So, there's actually a restaurant in Halifax, a very popular restaurant who ended up at the Supreme Tax Court. I'm not sure it was Supreme Court of Canada, or it was the top level. They were chasing it down, because CRA came after them for source deductions on pool tips they were banked out. Their position was that the tips were electronic tips received by the restaurant. The restaurant were paying out the tips to the people that kept earning the tips, but they were not withholding source deductions. So, they weren't withholding EI or CPP on them. The court case is over whether or not the restaurant owned or owed source deductions, and they lost.
So, the final ruling has come down that they do. They are required to remit source deductions on that, which is bad news for the employer. Now, this is a branded ruling. Everybody has going to figure out, hey, if we're going to put all of the tips that come in electronically on the T4 for source deduction calculations, it's now on the T4. So, this could mean that previously untaxed income is going to become taxable. It's been the loophole that the serving economy has made their living off, literally and favorably. So, this is something that's going to potentially change this year. Again, I bring it forward as something that's in everybody's day to day life that again, having a tax plan and making sure that you can pivot and adjust when changes come along is important. The industry is going to have to adjust to this, and they're going to have to do so uniformly, because the challenge is if one restaurant chain decides to be very conservative about this, well, they're going to lose all their employees over other employers who are not going to be as conservative.
So, it's going to play out over the next little while, and it's an issue that's been run through the ringer a little bit over the last couple years as well. But, it is a change coming forward. So, if you have any form of income that is tip related or something similar that you think is a non-taxable form of remuneration, be careful. They've come after this one, and this is made it right to the, as I understand it, top level of tax court that you can go with it, so the defining this now precedent, this now law. What it means to everything else, again everybody looks to be completely confident exactly what this means. They're not, because it's open to interpretation. It's open to be challenged, and there still could be more precedent set in this regard.
Josh Sheluk:
It's interesting, because when I was out watching the Canada World Cup game on the weekend, we were just talking about the different cultures and countries around the world and their tipping culture. It's very unusual, I would say, in most other westernized or first world countries around the world that tipping is a thing. It seems to be really a North American thing. We were talking about the UK where it's almost frowned upon to tip, and we're heading out to New Zealand later this week. Tipping is not a thing there, so it seems like a lot of the world is kind of ahead of us on this one. Maybe the simple solution is to remove tipping and have it more of ... Let's pay these people a fair wage right off the bat and stop subsidizing them through tips. That might solve all the problems, completely irrelevant to the tax thing, but also kind of-
Colin White:
No, actually, I'm going to tie it right back. It's perfectly relevant to this conversation, Josh, because again, people tend to look at these changes and go, "Oh, my god, this is the end of the world." No, it's not. It's just a different reality. There's people all over the world that run this way. So, no, this isn't, oh, my god, this is the worst thing ever. Shut up. It isn't. This is just a new reality, and you hit it right on the head. In order to have these people work in these restaurants, you're probably going to have to pay them more.
The cost of your meal is going to go up, probably roughly close to what you were tipping before, but the tip is going to come out of the equation. Are we really in a different spot? No. So, this isn't the end of the world. This is going to be winners and losers. There's going to be people who adjust to it better than others, and it's going to take some time, messy while it happens. But, yeah, it's a great point, Josh. I haven't done nearly as much traveling abroad as you do, but in one experience, Iceland, where yeah, tipping wasn't a thing. Prices were ridiculous, but tipping wasn't a thing. So, there are places you can make it work.
There's something else coming forward next year that the CRA is coming. Apparently, and again this is coming from somebody who's kind of on the inside of the tax policy world, apparently CRA is coming forward with a list of aggressive tax planning strategies that tax practitioners are going to be required to report. Now, not to say that they're going to do anything about them, but they'd like to have a shopping list of the aggressive tax plannings. There's things like using cash value of life insurance to pledge for a loan so that you don't have to pay tax on the way. So, it's a tax free way of getting money out of life insurance. That's an example of aggressive tax planning. Right now, that hasn't been a problem.
But, if I was a betting person, if they've gone after everything else they've gone after, that's going to make the list of something. So, the tax practitioners are going to be obligated and required now to disclose various enumerated tax strategies to CRA. Again, what they're going to do with that information is probably consider what they need to do about it. That's probably a lot of the things that they're not entirely sure how to deal with. Again, they've taken a run at different things. The bare trust is a great example. They took a run at it, and they seem to have missed. That's not the only bullet they're going to use. There could be another way that they can back out here. So, that's going to be different for this year.
Bill C-208, we talked about. That's where they actually stick. This is an interesting one. Forgive me, everybody. This is interesting. We're talking about a piece of legislature. Yes, legislation. Yes, it's interesting. Bill C-208 allowed, does allow for family businesses to transition from one generation to the next without being punished untowardly. It used to be if you sell your business to a third party, you got those tax advantages to that. But, if it stayed within the family, you didn't get the same tax advantages. So, they have changed that. Now, this was introduced by back venture, which is peculiar. Typically, back ventures don't get things actually brought into law, but this one did. But, the problem was it didn't go through the normal process, so it's horribly written, perhaps one of the most horribly written pieces of legislation in the history of legislation. So, it's very ambiguous, and it's full of holes right now.
So, this goes back to aggressive tax strategy. There's aggressive people who are going to to do very aggressive things with it. That's [inaudible 00:33:02] trouble, but it's going to get cleaned up. It is something that's very, very positive for business ownership. If you have someone in the family you are planning on selling the business to, make sure you talk to whoever is giving you tax advice to learn how Bill C-208 affects that to your advantage to make sure you go through that, for sure. There's all kinds of other things that have been focused on, corporate employees. That's something the CRA is going after really hard, because again, it's one of those gray areas. So much tax is a gray, or am I an employee, or am I contractor? Sometimes, it's the individual who wants to be treated as a contractor. Sometimes, it's the employer that wants to treat you as a contractor. Sometimes, the employer says, "I want you to incorporate."
Well, again, if you go on CRA's website, there's a whole range of things that they look at as to is this legit? And, it's not definitive. It's all gray. You can try to defend anything, but it is an area of focus now. They're taking a look and saying, "Is this legit?" People play in this gray area all the time, and for personal reasons or corporate reasons, they do that. It's something that's on the radar. Be careful. They're going to come take a look at it. There's a couple other changes coming down. In general, any avoidance rules are being expanded. Basically, when you get the end of the Tax Act, there's a blanket statement that says, "Hey, any series of transactions that you undertook specifically to avoid income tax, we're going to disallow. So, if you violate the principles of the Tax Act to a point that we don't like it, we're just going to say, 'In general, any avoidance, you always tax.'"
That's actually fairly stringent. There's all kind stuff that really doesn't apply to. They're looking to expand that, because again, when you get to litigation, people are challenging. Alternative minimum tax in Canada nets zero taxes for the government. Basically, if you have events in current year that drive your tax bill to come up by a certain amount, there's a minimum tax that you're going to have to pay. But, the way it's currently written is you get that back over future years. They're looking at capping or restricting the carrying forward of that. But, I want to end on a general planning principle when it comes to tax. I've gone through a whole list of fairly recent things or current things that are going through, and I want you to have a couple takeaways here. One, because the government says it in a budget doesn't mean it's going to happen. Two, because they said it in a budget, that doesn't mean it's going to show up the way they said it in the budget, because there's a bunch more steps that have to happen.
Three and four are a little bit more nuanced. Again, there's a big difference between making an election this year on your tax return that you may not make next year, all right? So, if you're just electing to report or treat something differently one year over the next, you know what? You're not taking as big a chance on things as you are if you enact a very complicated strategy involving corporate structuring, trusts, all the rest of it. If you spend a whole bunch of money and go down a road towards something that's not undoable for tax planning purposes, you're taking a much bigger risk. Honestly, you're making a bigger target of yourself. So, you want to be super careful in that regard. Again, there's always going to be somebody up there telling you that aggressive strategy can work for you. Everybody loves paying less tax, and you want to believe, but you really, really should be careful. Do you think I gave enough disclosures and disclaimers on this, Josh?
Josh Sheluk:
I think so. I was just surprised that, hey, income tax policy, maybe not as boring as you think.
Colin White:
Well, listen, I took a course from a guy. This was a two day course, and Bill C-32 became available that Monday night or Tuesday. It was a Monday night. That's what it was. So, we're all meeting for having a cocktail after, and he didn't show up. Well, come to find out he had received a copy of Bill C-32 that night, so he stayed up most of the night reading it. So, he came in the next morning way enthusiastic about the bill and probably one of five people who actually read it. I could not begin to ascend to his level of excitement over it or retain more than 5% of what he had to say about it. But, hopefully I did it.
Josh Sheluk:
Well, that's great, Colin. As you said, you said multiple times in the past really, you don't really reinvent your tax planning strategy around something that might happen in the future. So, I think that's the main takeaway here.
Colin White:
That's another huge takeaway. That's a very good point that I don't think I made very well, Josh. If something gets announced, or you expect something, don't reorganize your finances around something you think is going to happen. Or, even if it's been announced in the budget, wait until it actually gets royal assent. It can wait until we actually see rules and regulations around it for you to act, because again, so much can change from the time something gets announced to the time it gets done.
Josh Sheluk:
And, I just can't wait to open a whole bunch of first time home buyer savings accounts in April. It's going to be very exciting.
Speaker 1:
This information has been prepared by White Leblanc Wealth Planners, who is a portfolio manager for iA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager only and do not necessarily reflect those of iA Private Wealth, Inc. iA Private Wealth, Inc. Is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth, Inc. operates.
Colin White:
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Speaker 1:
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