Tax Planning Strategies

Marginal Tax Rates

The 2023 Tax Documents Overview and Schedule provides a summary of mailing dates and online availability (Gateway) of clients’ tax slips.

2023 Tax Tips for Investors

A guide for philanthropic and charitable giving strategies.

The benefits of making a charitable donation are countless – from helping those in need to the personal satisfaction of giving back to the causes that are important to us. Charitable giving also makes good sense from a tax perspective. With proper planning, you can reduce your total income tax liability and maximize the value of your donation.

There are many ways to give back as you near the exit phase of your business. While starting a private foundation is a popular method to create a legacy for your family, other strategies may better fit your needs and situation. Aside from the benefit of helping others, a major benefit of charitable giving includes tax credits that can be claimed for up to 75% of your net income for the year.1 Generally, almost any property of value can be contributed as a charitable donation, with some restrictions around non-cash gifts.

A common incentive program provided by Canadian employers is a stock option plan. These programs grant employees (including directors) the right to acquire a set number of shares of the employer (or parent) company at a fixed price (“exercise price”) within a set timeframe. The intention of these programs is to align employee/employer interests by providing a long-term incentive in which employees benefit from the success of their employer, and likewise, employers benefit from long-term, loyal employees. This publication provides an overview of the Canadian tax implications of stock options issued to employees who are resident in Canada for tax purposes.

Towards the end of the year, many investors review their investment portfolios to determine the anticipated tax impact of any capital gains and losses realized during the year. For investors who have realized significant capital gains, this article examines various strategies to help reduce the impact of a potential tax liability of these gains, regardless of whether they were the result of a voluntary or involuntary sale.

One of the most important tax breaks offered to Canadians is the “Principal Residence Exemption” which can reduce or eliminate any capital gain otherwise occurring for income tax purposes on the disposition (or deemed disposition, such as upon death) of your home. In general, a resident of Canada who owns only one housing unit, which is situated on land of one-half hectare or less, and which has been used since its acquisition strictly as their residence, will qualify for the principal residence exemption. Although simple in concept, in situations other than the one described above the tax rules governing the exemption can quickly become complicated, particularly when more than one residence is owned by a family unit.

Tax Proposals Affecting Private Corporations -

Tax Planning Using Private Companies

A popular tax strategy involves the use of a prescribed rate loan to split income amongst family members. Despite the recent increase in the prescribed rate from 1% to 2%, the ability to lock in the current 2% rate is still attractive. However, in light of the recent announcement by the Canada Revenue Agency of an additional, forthcoming increase in the prescribed interest rate from 2% to 3%, effective October 1, 2022, you will need to act quickly to lock in the current rate of 2% to take advantage of the income-splitting benefits of this strategy.

The pension income-splitting rules provide an effective, yet simple, strategy to lower family taxes. Being able to split pension income provides an opportunity for couples to reduce their overall family tax bill by taking advantage of a spouse’s or common law partner’s lower marginal tax rate where retirement incomes are disproportionate.

CRA Foreign Reporting Requirement

Many Canadians will receive an income tax refund from the Canada Revenue Agency or Revenu Québec, for those who also file taxes in Quebec. If you’ve received a tax refund based on your income tax return, it may be worthwhile meeting with your BMO financial professional to discuss how you can maximize using these funds, such as repaying non-deductible debt, or catching up on your Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), or Registered Education Savings Plan (RESP) contributions.

Although Canadian snowbirds reside in the U.S. for only a part of the year, there is the potential of being considered a U.S. resident and, in turn, having to pay U.S. income tax on the same basis as a permanent U.S. resident. This article outlines how the U.S. government determines whether you are a resident for income tax purposes; namely, it covers the criteria for meeting the Substantial Presence Test, Closer Connection Exception and the Canada U.S. Income Tax Treaty Tie-Breaker Rules.

Trusts are often used in tax and estate planning because of the flexibility they offer over the control, management and distribution of appreciating assets. In an estate planning context, trusts can be used to provide control and protection of assets, reduce probate fees at death or serve as a Will substitute, and as a vehicle to transfer wealth to future generations. From a tax planning perspective, in the right circumstances, trusts can be used to facilitate income splitting by spreading income amongst family members who are taxed at lower marginal tax rates, thereby reducing the family’s overall tax burden. In particular, the use of a discretionary family trust to reduce the after-tax cost of children’s educational and other expenses is a common tax