9 Ways the 2016 Federal Budget Could Affect Your Business
The Trudeau government’s first budget contained a shock on the small business tax rate, and some smaller let-offs
by Murad Hemmadi for ProfitGuide
When Bill Morneau rose to deliver his first budget speech as Finance Minister in Justin Trudeau’s new federal government, entrepreneurs and the owners of Canada’s small- and medium-sized businesses held their breath.
Concerns over the small business tax deduction, stock options for startup employees and capital gains exemptions made this a crucial policy document for SMBs. Here’s what the 2016 federal budget will do and change, and what that means for you and your business.
1. Small Business Tax Rate Frozen
Companies that meet the criteria for a Canadian-Controlled Private Corporation (CPCC) pay a reduced effective rate on their first $500,000 of active business income. In last year’s budget, the then-Conservative government proposed to drop that rate in increments from 11% at the time to 9% by 2019.
As of January 1, 2016, the small business rate was 10.5%, and the 2016 budget “proposes that further reductions in the small business income tax rate be deferred.” In effect, that means the rate will stay where it is today until the government decides otherwise.
Shared Ownership Critical Illness
Shared Ownership refers to a concept where more than one party owns an interest in an insurance policy. The most common of these arrangements is where the corporation is the owner and beneficiary of the death benefit and the shareholder or employee owns the cash value of the policy.
Recently there has been growing interest in applying this strategy to a Critical Illness policy. Although the CI policy does not have cash value, there is usually an option to have a Return of premium (ROP) in the following situations:
- Upon death – If the insured dies without having submitted a claim for critical illness the premiums paid are refunded;
- Upon Termination – If the policy reaches its termination age without a claim being made, the premiums paid are refunded;
- Upon Surrender – If the policy is surrendered without a claim, premiums paid are refunded.
Q1 Portfolio Commentary
Follow the cash, forget about the noise – January was ugly. Crude oil’s merciless slide took it briefly below $30 a barrel, the Canadian dollar touched 68 cents against the greenback, and the S&P 500 suffered its worst start to a calendar year – ever. Not unexpectedly, this tempest summoned the usual parade of pessimists, many who’ve now been forecasting a market crash for well over half a decade.
Click here to read more: DM-Portfolio-Commentary-Q1-16-1
Taxation of Life Insurance – New Rules Offer a Window of Opportunity
Permanent life insurance, such as Whole Life or Universal Life, has long been accepted as a tax efficient way of accumulating cash for future needs. Soon the amount of funds that can be tax sheltered within a life insurance policy will be reduced by new tax rules which take effect January 1, 2017. These changes may make 2016 the best year to buy cash value life insurance.
The changes to the tax rules regarding life insurance have resulted in an update to the “exempt test” which measures how much cash value can accumulate in a policy before it becomes subject to income tax.
Highlights of the new rules and their effect
For Cash Value Life Insurance: Read more 
