November 2021 Newsletter

Ah, November - that underappreciated month sandwiched between the rush of Thanksgiving and Halloween, and the busy holiday season of December. November is also Financial Literacy Month, which seems somewhat appropriate, as many people don't appreciate the effect that their finances can have on their lifestyle and well-being.

For us, November also means looking ahead to year-end tax planning. In this issue, we'll look at the merits of salary vs dividends, the Ontario Fall Fiscal Update, and the revamped COVID-19 relief programs available.

So, put on your comfy socks and curl up by the fire with our November newsletter. We'd love it if you would cozy up to us on social media. Click on the icons below and hit the "Like" or "Follow" buttons to follow us on the platform of your choice - it's like a big warm hug for your finances.

Well, we figured this would happen - the federal government has extended and/or replaced many of its programs. As of this writing, these are the programs currently available:

For Individuals

Canada Worker Lockdown Benefit (replaces the Canada Recovery Benefit)

Canada Recovery Sickness Benefit (proposed extension until May 7, 2022)

Canada Recovery Caregiving Benefit (proposed extension until May 7, 2022)

For Businesses

Canada Emergency Wage Subsidy (will be changing into two new programs, with no firm details yet)

Canada Emergency Rent Subsidy (will be more restricted in eligibility, but extended to Spring, 2022)

Canada Recovery Hiring Program (proposed extension until May 7, 2022)

Much of these changes and extensions are dependent on approval by parliament, which will resume sitting next week. Watch this space for updates in the future.

It's the eternal question for owner-managers: should I pay myself via a salary or a dividend? There is no clear-cut answer - the best option depends on each unique circumstance.

Salaries are deductible from taxable corporate income, whereas dividends are not. However, dividends receive preferential tax treatment on personal tax returns compared to salaries.

When we look at how much money stays with an owner after corporate and personal taxes are paid on compensation - either by salary or dividend - there is no significant tax advantage to one option or another, due to integration in most provinces.

However, a salary or dividend can impact your finances in other ways. In short, salaries:

Increase your RRSP contribution room (up to the maximum limit each year).

Require CPP deductions, which will provide access to the Retirement Benefit later on (as well the Disability benefit).

Do not affect income-tested benefits (Canada Child Benefit, Old Age Security, etc.) as much as dividends.

Can be used to lower corporate taxable income to maximize the Small Business Deduction.

Are generally viewed more favourably by lenders when trying to obtain a mortgage.

By contrast, dividends:

Allow taxpayers to use the Dividend Tax Credit to lower their personal income tax.

Do not require CPP deductions (can be beneficial if the owner has contributed enough to max out their benefits).

Allow the corporation to recover its Refundable Dividend Tax On Hand account (if a balance exists).

Are paid out of Retained Earnings, which makes more sense in years when an income deduction is not needed.

Will affect income-tested benefits due to the taxable gross-up on amounts taken out of the corporation.

Can allow for a tax-deferral advantage in some circumstances.

Our general approach is to pay salaries up to the CPP maximum pensionable earnings and then use dividends to cover any remaining compensation. With the total tax paid being roughly equal, we feel that increased RRSP limit and the future CPP benefits help clients plan for their retirement.

When is a Budget not a Budget? When it's an Economic Outlook and Fiscal Review, which is what we got earlier this month. For something with a name that long, there wasn't too much contained in the document itself.

From an income tax perspective, these are the highlights:

Ontario Staycation Refundable Tax Credit which will refund a portion of accommodation fees paid in the province during 2022.

Ontario Jobs Training Tax Credit will be extended by one year to cover 2022 costs.

Ontario Seniors' Home Safety Tax Credit will also be extended by one year to cover 2022 expenditures.

There is also a proposal to reduce the tax rate on certain on-farm buildings (generally value-added facilities). The province is promising to reduce the education tax rate on the first $100,000 of assessment. it is left to each municipality to choose if they will reduce the other components of the property tax bill.

Other property tax measures include extending the farm classification of maple sap processing to all edible tree saps, increasing the exemption on-farm woodlots to 30 acres, and streamlining the application for the Farm Property Tax Class Rate Program.

Well, that's all from us for November. We hope you've found some useful information here. If there's anything you'd like to see us talk about in a future newsletter, drop us a line here.

We encourage everybody to check out the federal government's web site for Financial Literacy Month - it has some great resources to help everybody build financial resiliency.

Now, we're off to dig out the snow shovel and rummage around in the back of the closet for the toques and mittens we tossed in there on the first warm day of the spring.

We'll be back in December with our final newsletter of the year.

If we had an in-house legal team, they would want us to say...

"The preceding information is for general purposes only and is not meant to be tax advice specific to any individual taxpayer. You should always discuss your particular situation with a qualified tax professional. Some items have been simplified."