10 tax saving & wealth building New Year’s resolutions

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As we step into a brand-new year, I’m thrilled to kickstart our journey together with a these 10 tax saving & wealth building New Year’s resolutions that are aimed at supercharging your business. Join me as I delve into these ten resolutions, plus two bonus tips, that promise to ensure you have the right foundations to manage, grow, and create success. Whether you’re navigating real estate ventures or excelling in the medical field, these resolutions are crafted to elevate your financial game. So, let’s dive in and pave the way for a year of financial mastery and prosperity!

Video Transcript: 10 tax saving & wealth building New Year’s resolutions

Let’s talk about 10 New Year’s resolutions that will help you save taxes, build wealth, and protect your legacy.

And stick around for not one, but two bonus resolutions at the end of this video.

I’m George Dube, saving the world from tax one bow tie at a time.

January is our traditional month for resolutions getting stronger, focusing on family, building new habits, but I’d like to give you a few more resolutions to choose from that will help you keep more money in your pocket and create momentum for your future goals. So let’s get started.

Resolution 1: Turn “bad” debt into “good” debt: The Smith Manoeuvre

Your first resolution, turn your bad debt into good debt.

In other words, make the non-deductible, debt deductible.

So how you can use a planning strategy called the Smith Manoeuvre. With this strategy, over time you can turn debt that you have in your home, the non-deductible or bad debt, into good debt. You can then use this good debt in your real estate business or other business or investment activities. Therefore, making it deductible. There are some gotchas in implementing the Smith Manoeuvre. So check out my video explaining the strategy.

Resolution 2: Use other people’s money to pay your taxes

Resolution number two, use other people’s money to pay your taxes.

What?

You can use someone else’s money to pay your taxes. Why, yes you can. You can in fact use OPM to not only pay your taxes, but also build intergenerational wealth. This strategy is not a do-it-yourself project. You’re going to need a professional team of accounting, insurance, and finance advisors to implement this advanced planning.

I talk in depth about this strategy in a series of videos that I’ve linked here. They’re longer videos, but well worth the watch.

Resolution 3: Pay your kids to save taxes

Resolution number three. So your kids may in particular like this and it deals with paying your kids or your spouse, in some cases, to save taxes. But how, you might ask? With something I like to call a Bow Tie Trust. The trust allows business owners, medical professionals, and real estate investors to split income with their children and spouse.

A number of years ago, the federal government implemented rules to effectively limit income splitting. However, with the Bow Tie Trust, you can gain some of this flexibility back. Yes, you’ll end up giving up a little control to save more taxes and there are issues with interest deductibility now in the trust, but it can be well worth it. There are also practical issues with increased interest rates, but advantages still may exist. Check out the video I linked here or in the description below for more details of the Bow Tie Trust.

Resolution 4: Review your structure

Resolution number four. Ask yourself, have I outgrown my structure or is my structure too complex for where I am now? It is always good to review the structure you have with your accounting and legal team to make sure it is still doing what you need and taking you where you need to go. Do you need a family trust? Do you need to amalgamate companies, create a new company, set up a Bow Tie Trust, bring in a new shareholder. I recommend having this conversation at least once a year. Often it only takes a couple of minutes, but it’s a powerful couple of minutes.

Resolution 5: Do a remuneration analysis

Resolution number five. Do a remuneration analysis. This is a fancy way of asking yourself, am I getting paid the right way? Review with your accountant how and what you are receiving for salary, bonus dividends, temporary loans, and so on. And check out the new rules relating to CPP. Your accounting team can do an analysis to see what can work for you. It may make more sense to avoid the escalating CPP costs and effectively create your own retirement plan. Check out our video related to CPP changes coming soon.

Resolution 6: Start retirement and legacy planning

Resolution number six. No matter your age, it’s never too soon to start retirement and legacy planning. I go into depth on estate planning for real estate investors in this video that I’ve linked here and I talk about estate planning for medical professionals in this video linked here. My best advice for this resolution is to get started.

Now I’m placing more and more emphasis on retirement and legacy planning while working with our clients. I’m seeing too many scenarios where I think real estate investors and medical professionals or other business owners where they’re going to face an unpleasant realization after retirement. Their income levels decrease dramatically without a planned decrease in living costs or unrealistic expectations of how much retirement will cost and what they’ll have to sacrifice. By starting now, we can avoid this very difficult scenario.

Resolution 7: Plan for tax-free capital dividends

Resolution seven. Plan for tax-free capital dividends. What does this mean? In English, companies have a capital dividend account with Revenue Canada, a CDA account. This is a special corporate tax account that gives shareholders designated capital dividends tax free. Essentially, whenever a company generates a capital gain, 50% is subject to capital gains tax. The non-taxable proportion of the total capital gain is added to the capital dividend account. This money can then be distributed to shareholders like you. Generally speaking, the CDA increases by 50% of any capital gains a company makes and on the other side it decreases 50% for any capital losses. So we have to be careful in triggering losses. The timing of it, we may, we may want to ensure we have enough in the CDA and the CDA gets paid out prior to triggering those losses.

Again, this takes some planning with the accounting team and the investing team and also will involve your legal team. Effectively, we’re going to file tax elections with Revenue Canada and there’s going to be some legal documents to support the claim and your lawyer’s going to do up these resolutions and Canada Revenue Agency wants this material prior to paying out the CDA. So it’s not quite as simple as writing the check and sending off some paperwork to Revenue Canada. It needs a little pre-planning.

Resolution 8: Watch for new rules on interest and financing expenses (EIFEL)

Resolution number eight. Watch out for EIFEL. Not the Eiffel Tower type of Eiffel. EIFEL, in our example or our situation, it stands for the excessive interest and financing expenses limitation. Some mouthful. So new rules took effect on or after October 1st, 2023. Related to the interest in financing expenses your company may incur in English. This means that the tax-deductible amount of interest and financing expenses can be restricted. Taxpayers must file a prescribed form with a corporate tax return to support the deductibility of these expenses. Consider planning and restructuring with your advisors as well, how you invest to maximize and preserve deductions. Stay tuned for my upcoming video on these new rules.

Resolution 9: Be ready for new trust filing rules

Resolution number nine. Be ready for new trust filing rules. Yes, another set of new rules for taxpayers in this case surrounding trusts, the federal government has added two key rules for trust return filings. It’s called a T3, which is due every March 30th or March 31st, depending on whether or not there’s a leap year.

First, bare trusts are now required to file a tax return for the first time ever starting for the 2023 tax year. Not sure whether you have a bare trust? Again, watch my video covering the topic linked here. Real estate investors in particular are going to need to be aware of this rule that can hit almost anyone. Steep penalties exist for failing to file the trust return potentially up to 5% of the value of the property related to the trust.

Second, trusts require new disclosures. Basically, the government wants more information about the people involved in the trust, so it may take some time to gather this for your information relating to the return that your accounting team will be asking for.

Resolution 10: STR owners: Denial of expenses & change of use GST/HST

Resolution number 10. This one is specifically for those who own short-term rentals. In the fall, the federal government proposed some extremely punitive measures for non-compliant short-term rental owners that would deny the expenses on the short-term rentals in regions where there were already restrictions on this type of real estate ownership. The government’s position is they want short-term rentals put into a long-term rental market or sold as family dwellings.

However, there’s a huge gotcha. If owners do change from short-term rental to long-term rental, this can be a deemed change in use. And what that means is the owner is subject to paying the GST and HST on the fair market value of the home today or at the time of change. So picture a $1 million Lakeside cottage changed over to a long-term rental. The owners would need to pay $130,000 in GST and HST if the property is located in Ontario.

As of recording this, I’m not sure how the government is going to stick handle this or if they even particularly care. They’ve only released draft legislation. What we’re going to need to see what happens after the comments that are already arising resolution is to be aware, be cautious, and talk with an advisor who’s very familiar with the topic.

Bonus Resolution 1: Use a tax calendar

Bonus resolution number one, the next resolution is a bonus, simple but effective. Use a tax calendar. A tax calendar helps you stay on top of all the key dates you may need to follow in the year. This includes things like:

paying tax installments,
filing and paying GST or HST,
filing and paying corporate and personal taxes,
filing your underused housing tax returns,
filing bare trust and family trust returns,
creating the trust resolutions,
creating eligible dividend resolutions including T5013s, the partnership income statements,
filing contractor forms, including T4s and T5s,
filing provincial year-end information returns where needed
making RRSP contributions for you or a spouse and home buyer’s plan repayments.

The list goes on. You check out my website, link below. We’ll have a tax calendar you to subscribe to for the year. Adjust it based on your needs and corporate year ends to ensure your year goes smoothly.

Bonus Resolution 2: Check the valuation of commercial properties…save property taxes?

Bonus resolution number two, it’s a special add-on for anyone with commercial properties. Check in with me before the end of January about the valuation of a property in Ontario. You have until March 31st to dispute the property tax assessment. This can result in some major savings for you. Other provinces have different deadlines and processes. Stay tuned.

Next steps on tax saving and wealth building New Year’s resolutions

That’s a wrap of my list of the 10 New Year’s resolutions and two bonuses help you save taxes, build wealth, protect your legacy. Now it’s time to get started. Do you have any questions or need help with managing your resolutions for the year by contact? Information is below.

And remember, click the subscribe button for more tax planning and wealth building tips. Thank you. Happy New Year and hoping and for a less taxing New Year for all.

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I want all of us to have the tax information we need to do wonderful things™.

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Resources

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