Effective January 2019, new tax rules will come into effect that will have a dramatic impact on some small business owners. Starting in 2019, the Small Business Deduction Limit will be reduced by $5 for each $1 of passive income that exceeds $50,000 and will reach zero once $150,000 of passive income is earned in a year. This new tax rule may be leaving business owners wondering how they can redirect a portion of excess cash flow that would traditionally produce passive income, and subsequently some unfavorable tax consequences.
Corporate owned life insurance can offer a “two bird one stone” solution to business owners. If used appropriately, strategies such as these are a viable option for a private corporation with a substantial amount of excess income and a life insurance need. The information below provides an elementary overview of how life insurance can be used to defer tax and grow the corporation’s estate.
The Liberal Government’s Federal Budget was delivered by Finance Minister, Bill Morneau, on February 27, 2018. There had been much concern and speculation about the direction the budget would take with respect to the taxation of private corporations. This was due to a release of the Department of Finance in July 2017 which contained private corporation tax proposals which addressed areas of concern to the government involving, among other things, business owners holding passive investments inside of their corporation. There was speculation that if these proposals were implemented the effective tax rate on investment income earned by a private corporation and distributed to its shareholders could increase astronomically. Thankfully, the concerns voiced by business and professional groups following the July proposals were effective in moderating the government’s actions.