moneyFYI
Financial Freedom Is Merely Organized Common Sense
Something Of Interest In Tax Law
I have been reading Canada Bill C-19, An Act to implement specific provisions of the budget tabled in Parliament on April 7, 2022, and other measures, and yes, I’ll admit it is a slow day. I had forgotten how legalese is a different language.
Nonetheless, you can observe quite a lot just by looking.
The Bill itself.
I cannot claim to be very interested in most of the bill. If you download it to Word, you will discover it is 447 pages and 144,244 words. For comparison, The Lord’s Prayer is 66 words, The Gettysburg address 272 words, and Ronald Reagan’s “Tear down this wall” speech is 2,672 words. I doubt bill c-19 will cause the changes or endure as long as those.
There are several items of interest, though.
For businesses, you should become familiar with the idea of “immediate expensing property.” That condition allows you to take an immediate write-off for certain capital purchases that you typically deduct over time.
From the BIll – “immediate expensing property for a taxation year means property of a prescribed class (other than property included in any of Classes 1 to 6, 14.1, 17, 47, 49 and 51 in Schedule II) of an eligible person or partnership.” There are many other thoughts and considerations to consider, but you should consider what could qualify and be valuable in your business circumstances.
It looks like used assets won’t qualify. You should check that and keep in touch with the bill as it goes through parliament.
By definition., “Person” as used above includes a corporation
Every business and every tax item is best seen from your own situation first. The tax tail should not wag the business dog.
When it might matter
Suppose you plan to add an asset that fits into any permitted classes for claiming capital cost allowance (depreciation of tax purposes) and, ideally, an immediate write-off. In that case, the provision will reduce the effective cost of the asset to your business.
For example, an asset that would go into Class 8, equipment generally, has a write-off rate of 20%. If you were looking at machinery costing $300,000, the write-off is either $60,000 or $300,000. The tax saving is in the range of $60,000 for people subject to the general rate. That $60,000 saving may tip the present value in your favour by making the immediate cost lower.
The lower the currently allowed rate, the more it has value to you. Class 12 and a few others have no value because they are already at a 100% rate.
Class 26 and class 37 both caught my eye. Class 26 permits a 5% claim and applies to catalysts. I have never had a client buy a catalyst, but that doesn’t mean no one does. Class 37 at 15% is very limited in its application too. It is for people who build an amusement park. Would a mini-golf facility fit here?
Things to talk to your accountant about.
Where in the list of prescribed classes will my purchase fit?
Is it subject to the half-year rule?
Will it complicate anything else I am doing or intend to do?
Has the Bill changed during the debate in parliament?
The bit to take away
Income taxes affect your business. Do what you can to minimize their effect. One of the tenets of tax planning is “Deduct”
“The avoidance of taxes is the only intellectual pursuit that still carries any reward.” John Maynard Keynes
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I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.
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