Globe Advisor’s Best of 2023: Tax planning takes precedence


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Come tax-filing time, some clients overlook key credits that can vastly reduce their taxes owing.claudenakagawa/iStockPhoto / Getty Images

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When it comes to determining an advisor’s value, many Canadians place an oversized level of importance on the investment returns their advisors provide – and how much they pay in fees to achieve that growth. Yet, this neglects a major part of the value advisors provide through other services such as tax planning.

Engaging in proper, sophisticated tax planning can ensure Canadians save significantly by taking advantage of the various tax-sheltered vehicles at their disposal, filing their taxes properly, and even avoiding common tax-related mistakes, among others.

Here are 10 articles on tax planning strategies that resonated with Globe Advisor readers in 2023:

Nine ways to prevent triggering a CRA tax audit

Every year, about 30,000 Canadians will receive a letter or phone call from the Canada Revenue Agency (CRA) telling them they’re being audited. That begins a lengthy and stressful process. Most candidates for an audit are flagged by the CRA’s risk-assessment systems, which are designed to identify tax returns most likely to be non-compliant. While it isn’t possible to audit-proof a tax return (some audits are random), experts say taxpayers can take these nine steps to reduce the chances.

How Canadians with certain mental illnesses qualify for the disability tax credit and other benefits

Some Canadians with disabilities don’t apply to receive the disability tax credit (DTC) because they believe they won’t be approved. But they could be leaving significant money on the table if they do qualify. “Most people who inquire about the DTC have a more obvious disability, but many more people qualify,” says Chris Poole, certified financial planner at Sun Life Financial Investment Services (Canada) Inc. in Toronto.

Why snowbirds who spend significant time in the U.S. face major tax repercussions

A growing number of Canadians have been blindsided by unexpected tax bills, penalties, or worse from the U.S. Internal Revenue Service (IRS) since an information-sharing agreement between the two countries was implemented almost a decade ago. The tax treaty attempts to determine which side of the border Canadians fall on for tax purposes through a complicated “substantial presence” formula put forward for the IRS. If snowbirds spend more than 182 days in the U.S. based on a three-year rolling average, they can be taxed as U.S. citizens.

Eight credits Canadians overlook when filing their tax returns

Come tax-filing time, some clients overlook key credits that can vastly reduce their taxes owing. An advisor can better explain how tax credits work and if they truly do apply to a client’s specific circumstances. “Our value is around communication and we need to make sure we’re working from a complete set of facts,” says Kevin Burkett, partner at Burkett & Co. Chartered Professional Accountants in Victoria.

How to use permanent life insurance to create tax efficiency in estate planning, grow a business

Permanent life insurance is considered one of the last tax-efficient ways high-net-worth Canadians can protect and pass along their wealth. With permanent life insurance, the insured pays a regular premium that grows tax-free in the policy and is then paid tax-free to their beneficiaries after they pass away. The benefit also bypasses probate, which means it’s paid out more quickly than many other assets in an estate.

How changes to the alternative minimum tax will affect large donors’ charitable contributions

Charitable giving is a critical component of any balanced financial plan. In the simplest terms, financial planning means save some money, spend some money and give some money. Like a three-legged stool, if one leg comes up short, the result is a fall. In other words, a financial plan is out of balance. Notably, proposed changes to the alternative minimum tax (AMT) set to take effect in 2024 have brought up how the move will affect high-net-worth Canadians’ financial plans and charities.

How to reduce an oversized tax bill after being paid as an executor

The CRA taxes executor fees, which often range between 3 and 5 per cent of the estate’s value, as employment income, subject to the executor’s marginal tax rate. Given the size of estates today, especially with soaring property values in cities such as Toronto and Vancouver, executor fees can significantly bump a person’s income and tax owning in the year it’s paid. However, executors may be able to limit their tax liability with some planning, says Michael Erez, vice president and director at Odlum Brown Financial Services Ltd. in Vancouver.

What the underused housing tax means for homes held in trusts, corporations and those used for vacations

The new underused housing tax (UHT), which came into effect this year, targets primarily non-Canadian owners of Canadian residential property and those who own dormant houses. Those affected by the UHT will have to fork over a 1-per-cent tax per year based on the property’s current market value. For example, on a house valued at $1-million, that translates into $10,000 of UHT. “That’s a sizable amount of tax that you wouldn’t have had to pay before and it’s every year,” says Aaron Hector, private wealth advisor at CWB Wealth Management Ltd. in Calgary.

How cross-border clients can utilize the U.S. gift tax lifetime exemption before rules change

With pending changes to U.S. gift taxes, some advisors are helping cross-border clients take advantage of planned giving strategies. Currently, the U.S. lifetime gift tax exemption is US$12.92-million but under U.S. legislation, the exemption amount will revert back to US$5.49-million (adjusted for inflation) on Jan. 1, 2026. “If a U.S. client has a tremendous amount of wealth and hasn’t utilized all their exemption, we’re certainly encouraging them to do so,” says Leslie Kellogg, partner and business tax practice leader at Hodgson Russ LLP in Buffalo, N.Y.

How to prepare for intergenerational business transfers before key tax-related changes kick in

With pending changes to Bill C-208 and the AMT in the new year, accountants and advisors are in a time crunch helping clients who are selling their business to a family member while it’s still advantageous to do so from a tax perspective. Bill C-208 provided families with more flexibility with intergenerational business transfers by giving the seller the ability to utilize the current $971,000 in lifetime capital gains exemption. But as of Jan. 1, 2024, more stringent conditions will be required to prove that a business transfer between family members is a genuine transaction.

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