Financial Advisor Ian Quigley on the small business implications of the 2012 Federal Budget
Ian Quigley, MBA, BSc, CIM – Senior Consultant (Qube Consulting)
Ian has assisted business owners and executives with pension, investment and tax planning ideas since 2000. Ian holds a Master’s degree in Business Administration (MBA), as well as an honors degree in research and analysis (Science). Both degrees were granted by the University of Alberta. Prior to this he attended the Northern Alberta Institute of Technology (NAIT) completing an honors diploma in Finance. Ian has two daughters and has been married for over 15 years.
Ian is the author and presenter of several popular online financial planning and small business tax strategies courses. Visit the ILScorp website for details.
Ian Quigley: Last year’s budget was really focused on shutting down what I would call creative tax planning. Anything that Canada Revenue Agency looked for what they would call ‘abuse’ or ‘working around’ the spirit of the legislation. That was last year’s budget. They had about dozen changes in the budget that were intended for that. So we called it a ‘loophole’ budget. And this year we still have a little bit of a legacy from last year’;s loop hole busting budget, in particular small business planners.
They will want to look at three things from this year’s budget:
First being the RCA Trusts. If you work with clients or you have an RCA Trust where you’ve used life insurance, especially the levered life insurance strategies, that’s all being shut down now. So they are not going to allow the use of an RCA Trust for owner/managers in that application. So if that is something you’ve been using you may want to look into that.
Second thing is EPSPs. These are another trust vehicle that’s been used, mainly for owner/managers across Canada to flow their salary and make it sort of escape Canada Pension Plan premiums. And in some places in Canada they’ve used this income-splitting tool. And so this year’s budget says no longer will what’s called a Specified Employee, so an employee who has significant equity interest, or they don’t deal at arms length from the employer, these Specified Employees cannot flow significant amounts through an EPSP Trust. And they define that at twenty percent. If the EPSP allocation exceeds 20% of regular salary it becomes subject to a whole bunch of tax. So these rules came into effect March 29, 2012, and they are dramatically going to shut down the use of EPSP Trusts for owner/managers.
And finally we have the Group Accident an d Savings Plans, the GASPs. They have become a very popular planning tool to really have critical illness insurance premiums paid on a tax deductible basis by the employer. And now they’ve redefined where a GASP will fit within a corporation. Now they say unless the premiums are being paid through the GASP are used for a benefit payable on a periodic basis, then it won’t achieve the tax benefits we’ve been getting. So really we want to say goodbye to CI policies paid for by the employer thanks to this year’s budget.
So those are the three things: The RCA Trusts, the EPSP and the GASPs; all fairly significant changes. Sort of a sad day for some small business planning, but the good news is the IPPs are\still rolling forward in 2012 and there’s been no changes to the private heath insurance plans.
Other titles of interest: Ian quigley breaks down the 2012 federal budget
