YEAR-END TAX PLANNER November 2014

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1 YEAR-END TAX PLANNER November 2014 Inside this issue: Dear Clients and Friends, as we approach the end of another year, now would be a good time to consider some tax planning measures that could help reduce your 2014 tax burden. To assist you with this, the following are some ideas you may want to consider. Your Segal advisor can assist you in determining which of these ideas make sense to you. What s New 1 Individuals 3 Corporations 5 Partnerships 6 Trusts & Estates 6 Appendix I - Key Tax Dates 8 Appendix II 2014 Personal Tax Rates Appendix III 2014 Corporate Tax Rates Universal Child Care Benefit 9 10 WHAT S NEW The Federal Government recently proposed new measures as follows: New Family Tax Cut Credit The proposed Family Tax Cut Credit would allow a higher income spouse to transfer up to $50,000 of taxable income to a spouse in a lower income tax bracket for federal tax purposes. This transfer would result in a non - refundable tax credit up to $2,000 for couples with children under 18 years of age. The credit can only be claimed by one spouse and certain conditions must be met to be eligible for the non-refundable credit. The credit will apply for 2014, and subsequent taxation years. The Government proposes to increase the Universal Child Care Benefit ( UCCB ) to $160 per month from $100 per month for each child under six years of age. The government also introduces a new UCCB of $60 per month for children aged six through 17 years of age. Both changes will take effect from January 1, 2015, however the first payment will be in July Child Tax Credit Currently, a non-refundable Child Tax Credit can be claimed per child under the age of 18 years. This credit is $2,255 per child for 2014 resulting in tax savings of $338. The proposed changes to the UCCB will replace the existing Child Tax Credit for the 2015 and subsequent years. However, the Family Caregiver Tax Credit will continue to be available in respect of an infirm minor child once the Child Tax Credit is repealed. Child Care Expense Deduction Currently, the maximum annual amount that can be claimed under the Child Care Expense Deduction is limited to the least of: The total amount spent on child care expenses; Two-thirds of the lower-income spouse s earned income; and The total of the maximum dollar limits for all children, which are $7,000 per child under age seven, $4,000 for each child age 7 to 16, and $10,000 for children who are eligible for Disability Tax credit, regardless of the age. Starting in 2015, the new measures increases the above thresholds by $1,000 per child. Ontario Tax On High Income Earners The 2014 Ontario Budget resulted in two changes to the rate of tax paid by individuals who earn greater than $150,000.

2 Page 2 November 2014 A new intermediate income tax bracket will apply to taxable income over $150,000 and up to $220,000. Income in this bracket will be taxed at 12.16%; previously such income was taxed at 11.16% The top tax rate of 13.16% will now apply to taxable income over $220,000; previously this rate would have applied only to taxable income over $514,090. The Ontario Surtax for 2014 and subsequent years will now be applied to Ontario tax payable before the dividend tax credit is claimed. The combined federal and Ontario marginal tax rates for the top two highest tax brackets are now as follows: Type of Income $150K-$220K Over $220K Ordinary Income 47.97% 49.53% Much of the detail still remains to be worked out but the budget proposes a plan similar to the Canada Pension Plan. Ontario Trillium Benefit Commencing 2014, recipients of the Ontario Trillium Benefit can choose to receive the benefit monthly or as a single payment at the end of the benefit year. The Ontario Trillium Benefit includes the Ontario Sales Tax Credit, the Ontario Energy and Property Tax Credit and the Northern Ontario Energy Credit. Employer Health Tax The Ontario Employer Health Tax exemption is increased to $450,000 (from $400,000) of annual Ontario payroll for 2014 and subsequent years. Eligible Dividends 31.67% 33.82% Non-Eligible Dividends For shareholders with taxable income greater than $220,000, the 2014 tax rate for an eligible dividend in Ontario is 33.82%. Therefore, distributing eligible dividends to trigger a refund of refundable dividend tax on hand will no longer result in a net tax savings because the dividend refund rate of 33 1/3% is less than the tax rate on these dividends. Because the eligible dividend rate for shareholders with taxable income less than $220,000 is less than the dividend refund rate for 2014 and subsequent years, distributing eligible dividends will continue to result in a net tax savings. Ontario Small Business Deduction For tax years ending after May 1, 2014, the Ontario small business deduction will be phased out for Canadian-controlled private corporations (including associated corporations) with taxable capital employed in Canada of more than $10 million in the previous tax year. It will be completely eliminated when the taxable capital is $15 million or more in the previous tax year. The phase-out will be pro-rated for taxation years that straddle this date. Ontario Training Credits 38.29% 40.13% Capital Gains 23.98% 24.76% Tax on Split Income ( Kiddie Tax ) A kiddie tax is levied at the highest marginal tax rate on certain income ( split income ) received by minors. For 2014 and subsequent years, the federal budget proposes to expand the definition of split income to include income that is paid or allocated to a minor from a trust or partnership if the income is derived from a business or a rental property and a person related to the minor is actively engaged on a regular basis in the activities of the trust or partnership to earn that business or rental income. Lifetime Capital Gains Exemption For 2014 and subsequent tax years the lifetime capital gains exemption is increased to $800,000 on the disposition of qualified small business corporation shares by individuals. In addition, the exemption will be indexed for inflation for taxation years after This new limit will apply to all individuals, even those that previously used their capital gains exemption. Foreign Reporting Form T1135 Foreign Income Verification Statement The Canada Revenue Agency ( CRA ) introduced a revised Form T1135 for specified foreign property held with a cost in excess of $100,000, which requires more detailed information than previously reported. This new form is required to be used for taxation years ending after June 30, The Ontario Apprenticeship Training Tax Credits and the Co-operative Education Tax Credit are currently refundable. The 2014 Ontario budget proposes to make these credits non-refundable for large businesses, so that they can be applied only against taxes otherwise payable. Ontario Retirement Pension Plan The 2014 Ontario budget introduced a mandatory defined benefit pension plan to take effect in 2017, to be funded by Ontario employers and employees. To provide some relief to the detailed reporting requirements, the CRA will allow taxpayers to report the aggregate amounts of specified foreign property held in accounts with registered securities dealers and Canadian Trust companies rather than providing the details of each such property. The form however, is still complex and time consuming.

3 Medical Expense Tax Credit (METC) The type of expenses eligible for the Medical Expense Tax Credit is expanded to include (i) the cost of the design of individualized therapy plans (e.g., applied behaviour analysis therapy for children with autism) if certain conditions are met, and (ii) the costs associated with service animals specifically trained to assist people in managing severe diabetes. This applies to expenses incurred after Adoption Expense Tax Credit Page 3 November 2014 The maximum amount of eligible expenses for the Adoption Expense Tax Credit is increased to $15,000 per child for taxation years after Children s Fitness Tax Credit The federal government proposes to double the children s fitness tax credit and make it refundable. The maximum amount that may be claimed under the credit will double from its current limit of $500 to $1,000 per child for the 2014 and subsequent tax years, and will be made refundable effective for 2015 and subsequent tax years. Eligible activities include those that contribute to the child s strength endurance, flexibility, and balance. For example, swimming lessons, hockey or dance classes. Deduction for Safety Deposit Boxes The deduction for safety deposit box is eliminated for both individuals and corporation for 2014 and subsequent years. Thin Capitalization Rules TAX TIP For 2014 and subsequent taxation years, the thin capitalization rules were extended to also apply to Canadian-resident trusts, non-resident corporations, and trusts carrying on business in Canada as well as corporations resident in Canada. GST/HST Election for Closely Related Persons Supplies of most property and services made between closely related parties (e.g., where 90% or more of the ownership is held by one corporation of another corporation) that are resident in Canada and exclusively engaged in commercial activities, are not subject to GST/ HST if an election is made. Currently the election form is simply completed and retained with each member. Effective January 1, 2015 a prescribed election form will be required to be filed with the CRA by the first date on which any of the parties to the election is required to file a return. Parties to an election made before January 1, 2015 will have until January 1, 2016 to file the election with the CRA. The budget also proposes that the parties to this election to be jointly and severally liable for any GST/HST owing on supplies. The exemption is eliminated for private sector employers (including groups of associated employers) with annual Ontario payrolls in excess of $5 million effective January 1, INDIVIDUALS There are many ways families can save at tax time. The activities for your kids may save you money on your taxes---save those receipts! If you care for dependants with a physical or mental impairment, you may be able to claim up to an additional $2,000 in the calculation of certain non-refundable tax credits related to the new family caregiver amount. Registered Retirement Savings Plans The maximum RRSP contribution room for 2014 is limited to the lesser of $24,270 or 18% of your 2013 earned income minus your pension adjustment. Your available contribution room should also be printed on the 2013 Notice of Assessment from the CRA. The deadline for your 2014 contribution is March 2, If you have excess cash available, consider making your 2015 contribution early any time after January 1, A salary of at least $138,500 is required in 2014 to earn the maximum RRSP contribution room of $24,930 for the 2015 taxation year. If you are turning 71 years old in 2014, you must terminate your RRSP this year. You can convert the RRSP into a Registered Retirement Income Fund, into an annuity, or it can be withdrawn in a lump sum. You must make your 2014 RRSP contribution by December 31, If you are terminating your RRSP in 2014 and you have earned income, consider making an over-contribution to your RRSP. This will result in a tax deduction for 2015 even though you can no longer contribute to your RRSP in that year. Since the over-contribution will be subject to a 1% penalty per month, it is advisable that the contribution be made in December to minimize the penalty. Consider making a contribution to a spousal RRSP to achieve income splitting in the future. The contributions will grow tax-deferred until withdrawn, and will be taxed in the spouse s name at that time. The contributor is entitled to the deduction at the time the contribution is made. A spousal RRSP is particularly useful if you are over 71 but your spouse is younger than 71. Although you may

4 Page 4 November 2014 not be permitted to contribute to your own plan, you are permitted to make contributions to a spousal plan until the end of the year in which the spouse turns 71 years of age. Even if your children have no tax to pay, you may wish to file tax returns on their behalf. If they have earned income, they will generate RRSP contribution room which can be carried forward indefinitely. Registered Disability Savings Plans The RDSP program is available to any Canadian resident that is eligible for the disability tax credit. Certain family members such as a spouse, common law partner, or parent of a disabled individual will be allowed (until 2016) to become the plan holder of a RDSP as agent for an adult individual who might not be able to enter into a contract. The RRSP or RRIF of an individual after death can be rolled over to a RDSP, subject to certain conditions. The RDSP beneficiaries with shortened life expectancies can withdraw more of their RDSP savings without triggering the 10 year repayment rules, subject to certain conditions. Registered Education Savings Plan Transfers between individual RESPs for siblings are allowed, subject to certain restrictions. This is intended to permit the same flexibility regarding the allocation of RESP assets among siblings as exists for RESP family plans. Tax-Free Savings Account The Tax Free Savings Account ( TFSA ) Program permits Canadian residents 18 years of age or older to contribute $5,500 in 2014 to their TFSA. If you have not contributed towards your TFSA since 2009, you will be eligible to contribute up to $31,000 by the end of A TFSA is similar to an RRSP as income and capital gains earned within the TFSA will not be taxable. However, unlike an RRSP, the contributions will not be deductible and withdrawals will not be taxable. Funds can be given to a spouse to establish their own TFSA and the normal attribution rules will not apply. Make a Charitable Donation If your contributions are in excess of $200, you will benefit from a greater level of tax savings. Since the CRA permits either spouse to claim the donations, you should have one spouse claim all donations made by both spouses. If you have little or no tax owing this year, you may choose not to claim the charitable donation. Unclaimed charitable donations can be carried forward for up to 5 years. Consider saving your unclaimed donations for a future year. One advantage of having the lower-income spouse claim all the donations is that the lower-income spouse may receive a tax refund that can be re-invested without the attribution rules applying to tax the investment income in the hands of the higher-income spouse. Donations to US charities can only be claimed on your Canadian tax return if they were made to a prescribed university or to the extent that you have US source income. Instead of cash, donate stocks or mutual fund units that have unrealized capital gains. Capital gains taxes are eliminated on gains that are generated when publicly traded securities are donated directly to a charity, or to a private foundation. Income-Splitting Consider making an investment loan to your lowerincome spouse to split income earned on non-registered assets and reduce taxes on the income. The CRA allows these loans as long as you charge at least the CRA prescribed interest rate on the loan and document the interest payments. The set interest rate will apply for the duration of the loan. Payment of the interest is due at the end of the calendar year and must be paid no later than January 30th of the following year. Tax Loss Selling Consider triggering capital losses before the end of the year to offset any capital gains realized in 2014 or in one or more of the last three years. Beware that specific rules prohibit you or an affiliated person from buying an identical asset within 30 days of the sale. Normally stock transactions are settled within three business days. Due to weekends and holidays, consider completing all trades by December 24, Adjust your December Instalments If your income has decreased since last year, you may be able to decrease your December instalment payment. Use caution since any under-payment will result in penalties and non-deductible interest charges. Medical Expenses You can only claim medical expenses in excess of a minimum threshold. For 2014, the threshold is the lesser of 3% of your net income or $2,171. So if your 2014 income exceeds $72,366, you can only claim medical expenses in excess of $2,171 paid in the year. You are permitted to select any 12 month period ending in 2014 when claiming medical expenses.

5 Page 5 November 2014 You can plan for the timing of certain medical expenses, since they are claimable based on when they are paid. For example, you may wish to pay for orthodontic treatment in full before the end of the year, even if the treatment will span the next year. A caregiver can claim eligible expenses under the medical expense tax credit ( METC ) for a dependant relative. There is no restriction to the amount paid. Public Transit Tax Credit Remember to keep each receipt and pass to claim the credit. The public transit tax credit includes weekly passes and cost-per-trip electronic payment cards along with monthly passes. Children s Arts Tax Credit The Children s Arts Tax Credit is available for fees paid for the enrolment of a child under 16 years of age. The fees paid should be in an eligible program of artistic, cultural, recreational or developmental activities. You can claim a 15% non-refundable tax credit based on a maximum of $500 of the fees paid for the program per year per child. A 15% non-refundable tax credit may be claimed on an additional $500 for a child who is eligible for the disability tax credit and is under 18 years of age. Tuition Tax Credits Fees paid for an examination to obtain professional status recognized by federal and provincial statutes can be claimed as a tuition tax credit. Examination fees paid to an educational institution, professional association or provincial ministry will qualify. Healthy Homes Renovation Tax Credit In Ontario, a 15% refundable tax credit is available on up to $10,000 of permanent home modifications that improve accessibility or help a senior get more functional or mobile. Other Suggestions If income in an inter-vivos trust is to be taxed in a beneficiary s return, the income must be paid or payable to the beneficiary by December 31, Consider purchasing assets eligible for capital cost allowance before the year-end. Up to $35,500 of ineligible dividends can be received by an Ontario resident who has no other income, without any income tax liability resulting. The Ontario Health Premium of $450 will still be payable. Up to approximately $49,284 of eligible dividends can be received by an Ontario resident who has no other income, without any income tax liability. However, there will be a minimum tax liability and the Ontario Heath Premium of $600 will still be payable. CORPORATE Corporate Tax Rates There is no change to the corporate tax rate for 2014 and subsequent years. The combined federal and Ontario tax rate on active business income for a Canadian-Controlled Private Corporation remains at 15.5% (26.5% if active business income exceeds $500,000). For investment corporations the tax rate remains at 46.17%. Capital Gains If you do not receive all of the proceeds of sale upon closing, you may be able to defer some of the tax for up to five years. This can be extended to 10 years for farm property. Capital gains on the sale of shares of a qualifying corporation may be sheltered by the capital gains exemption, with a lifetime limit of $800,000 for 2014 and indexed for subsequent years. If you have previously claimed an allowable business investment loss ( ABIL ) or if you have a cumulative net investment loss ( CNIL ), your ability to claim the capital gains exemption in 2014 may be restricted. Steps should be taken to rectify this issue in order to claim the capital gains exemption. Shareholder Loans Should be Repaid If you or family members have borrowed money from a corporation in 2013, the loan must be repaid by the end of fiscal If the loan is not repaid at that time, it will be treated as income for Also, remember to pay any interest owing to the corporation by January 30, 2015 in order to avoid receiving a taxable benefit on unpaid interest. Declare a Bonus A CCPC can take advantage of lower corporate tax rates if their taxable income is below $500,000. If a bonus is declared and accrued in order to bring taxable income down to this level, the bonus must be paid within 179 days after the fiscal period. If individual cash requirements are low consider keeping income in the corporation to defer tax to later years as corporate rates are likely less than personal rates. The combined federal & provincial corporate tax rate on active business income for a CCPC is 15.5% (26.5% if active business income exceeds $500,000) compared to the personal tax rate of 49.53% (if taxable income exceeds $220,000).

6 Page 6 November 2014 Interest Expense Interest may be deductible if it is incurred for the purpose of earning income from a business or from property, while interest on money borrowed for personal purposes is not deductible. Any excess cash should be applied first against paying off your nondeductible loans. You may also wish to consider restructuring your borrowings such that the interest incurred is tax deductible. PARTNERSHIPS Deferral opportunities for corporations with a significant interest in a partnership that have a different fiscal period than the partnership are limited. Corporations are required to accrue income for the portion of the partnership s next fiscal period that falls within the corporation s taxation year. TRUSTS & ESTATES Now is the time to review your trust arrangements and to make sure all documentation is up-to-date and to ensure that all transactions are completed and recorded on a timely basis. With various court decisions on the trust s residency, it is important that you review the arrangements for family trusts set up abroad or in another province in determining where a trust is resident for Canadian tax purposes. A testamentary trust is currently taxed at graduated rates. Based on recent budget announcements, the Government intends to eliminate the preferential tax treatment available to testamentary trusts; effective January 1, 2016, a testamentary trust will only be entitled to use the graduated rates for the first 36 months after the death of the testator. After the 36 month period, a testamentary trust will be subject to tax at the highest marginal tax rate and will be required to adopt a December 31, year-end. Currently a donation made through an individual s will is treated as having been made by the individual immediately prior to his/her death. Commencing in 2016 and subsequent years, the 2014 federal budget proposes that donations made by will, will be treated as having been made by the estate at the time the property is transferred to a qualified donee, and where the transfer is made within 36 months following an individual s death, the estate may claim the donation tax credit either in the year the donation is made or in an earlier year of the estate. Alternatively, the estate may deem the deceased individual to have made the donation in the year of death or the previous year. IMMIGRATION TRUSTS For taxation years ending after February 10, 2014, the 2014 federal budget proposes to eliminate the 60- month exemption from the non-resident trust rules for immigration trusts. Consequently, planning will be needed to effectively deal with the tax implications associated with this type of structure as soon as possible. THE INFORMATION PROVIDED IN THIS PUBLICATION IS INTENDED FOR GENERAL PURPOSES ONLY. CARE HAS BEEN TAKEN TO ENSURE THE INFORMATION HEREIN IS ACCURATE; HOWEVER, NO REPRESENTATION IS MADE AS TO THE ACCURACY THEREOF. THE INFORMATION SHOULD NOT BE RELIED UPON TO REPLACE SPECIFIC PROFESSIONAL ADVICE.

7 Page 7 November 2014 SEGAL LLP History and Services Our Firm was established in Since then we ve grown to be one of Canada s 30 largest accounting firms - offering integrated solutions in Assurance, Taxation and Business Advisory. Our results-oriented team takes a hands-on approach to developing personalized solutions for you and your business. Drawing on our experience, range of services and abilities to create opportunities through insight, we will assist you every step of the way in executing your short and long-term goals. You and your business aren t limited by a border and neither are we. Our membership in Moore Stephens International Limited gives us the ability to serve you in over 105 countries worldwide. We re here to help you - wherever you grow. Our Services are continuously monitored and adjusted to meet our clients changing needs. We keep ourselves adaptable and up-to-the minute so you can stay one step ahead. Audit and Assurance Services Taxation Estate and Personal Financial Planning Mergers and Acquisitions Business Advisory Financial Reporting Segal LLP 2005 Sheppard Ave E, Suite 500 Toronto, Ontario M2J 5B4 Tel: THE INFORMATION PROVIDED IN THIS PUBLICATION IS INTENDED FOR GENERAL PURPOSES ONLY. CARE HAS BEEN TAKEN TO ENSURE THE INFORMATION HEREIN IS ACCURATE; HOWEVER, NO REPRESENTATION IS MADE AS TO THE ACCURACY THEREOF. THE INFORMATION SHOULD NOT BE RELIED UPON TO REPLACE SPECIFIC PROFESSIONAL ADVICE.

8 Page November APPENDIX Page Page 5 5 I Key Deadlines Due Dates Items To Be Filed/Payments to be Made December 15, 2014 Final quarterly tax installment due for individuals for 2014 December 24, 2014 Final trading day on which to settle a trade in 2014 for Canadian stock exchanges December 31, 2014 Last day to make certain payments in order to claim tax credits or deductions on your 2014 individual tax return. For example: RRSP contributions if you turn 71 by December 31, 2014 Charitable and Political donations Child-care and child fitness/art expenses Investment counsel fees Medical expenses Moving expenses Tuition fees and interest on student loans Alimony and maintenance payments January 30, 2015 Interest due on family loans (to avoid attribution of income) March 2, 2015 Last day to file: T4, T4A and T5 Summary and Supplementary forms March 2, 2015 Deductible contributions to your own RRSP or spousal RRSP (for 2014 deductions) RRSP Home Buyer s Plan repayment due (to avoid 2014 inclusion) March 16, 2015 First quarter tax installment due for individuals for 2015 income tax March 31, 2015 Last day to file income tax returns for inter vivos trusts without penalty Last day to file NR4 Summary and Supplementary forms regarding amounts paid or credited to non-residents of Canada April 30, 2015 Last day to file personal tax returns Last day to pay 2014 personal income tax Note: Self-employed individuals or spouses of self-employed individuals - the deadline is June 15, Filing deadline for personal returns may be later if individual or spouse died during the year (terminal return)

9 Page November APPENDIX Page Page 5 II 5 Top Combined Federal and Provincial/Territorial Marginal Personal Income Tax Rates Ordinary Income & Interest Capital Gains Canadian Dividends (Eligible) Canadian Dividends (Non-Eligible) Federal only 29.00% 14.50% 19.29% 21.22% Alberta 39.00% 19.50% 19.29% 29.36% British Columbia 45.80% 22.90% 28.68% 37.99% Manitoba 46.40% 23.20% 32.26% 40.77% New Brunswick 46.84% 23.42% 27.35% 36.02% Newfoundland and Labrador 42.30% 21.15% 30.20% 32.08% Northwest Territories 43.05% 21.53% 22.81% 30.72% Nova Scotia 50.00% 25.00% 36.06% 39.07% Nunavut 40.50% 20.25% 27.56% 31.19% Ontario 49.53% 24.76% 33.82% 40.13% Prince Edward Island 47.37% 23.69% 28.70% 38.74% Quebec 49.97% 24.98% 35.22% 39.78% Saskatchewan 44.00% 22.00% 24.81% 34.91% Yukon 42.40% 21.20% to 19.29% 32.04%

10 Page November APPENDIX Page Page 5 III 5 Top Combined Federal and Provincial/Territorial Marginal Corporate Tax Rates Canadian-Controlled Private Corporations (CCPCs) General Manufacturing & Processing Active Business Investment (M&P) < $425,000 $425,000- $500,000 Federal 15.00% 11.00% 34.67% Alberta 25.00% 14.00% 44.67% British Columbia 26.00% 13.50% 45.67% Manitoba 27.00% % 23.00% 46.67% New Brunswick 27.00% 15.5% 46.67% Newfoundland and Labrador 29.00% 20.00% 14.5% 48.67% Northwest Territories 26.50% 15.00% 46.17% Nova Scotia 31.00% 14.00% (up to $350K) 27.00% ($350K-$500K) 50.67% Nunavut 27.00% 15.00% 46.67% Ontario 26.50% 25.00% 15.50% 46.17% Prince Edward Island 31.00% 15.50% 50.67% Quebec 26.90% 19.00% (Non- M&P) 17.85% (M&P) 46.57% Saskatchewan 27.00% 25.00% 13.00% 46.67% Yukon 30.00% 17.50% 14.50% (non-m&p) 49.67% 13.50% (M&P) If you wish to obtain more information on any of the above, please contact your advisor at Segal LLP to review your situation and determine what steps might be taken before the year-end and in the new year to minimize your taxes.

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