For many dentists, the golden parachute at the end of their career is having the opportunity to sell the practice tax-free.  Structured correctly, the bigger the practice, the bigger the savings.  The largest tax savings are achieved by multiplying the lifetime capital gains exemption with other family members by utilizing a family trust in your corporate structure.

Currently, the lifetime capital gains exemption (“LCGE”) is $1,250,000 per individual and is indexed for inflation, meaning the future savings are even more.  The amount you save depends on the value of the practice and the number of family members included in your family trust, each having access to the lifetime capital gains exemption. Here’s an illustration:

However, a common mistake is not implementing the trust in the corporate structure early enough, which results in having to delay the sale for many years, or simply missing out on the tax savings altogether. The trust cannot simply be introduced a short time before the practice is sold. The trust’s shares need time to grow in value from the time it is added to the structure to the time of sale.  As an example, at the inception the trust will have to subscribe for shares for a nominal amount, quite often $10.  You will need to rely on practice growth and practice earnings for those shares to increase in value, which will take time. If the practice is already valued at $3 million and earning $500,000 after the dentist’s salary and corporate tax, it may take 4 to 5 years before the trust shares have increased in value enough to fully utilize the lifetime capital gains exemption of the trust beneficiaries.

For some, they may not plan on selling the practice for many years.  However, in the unfortunate event they become disabled or pass away unexpectedly before they have the opportunity to sell the practice, their family is left with the burden of selling the practice without the time to create a trust to multiply the exemption, potentially costing hundreds of thousands of dollars of tax.  You would not spend your career practicing without the protection of disability or life insurance, nor should you jeopardize the tax savings of selling your practice tax-free by waiting too long to set up your family trust.

If you want to know more about adding a family trust to your corporate structure, contact a Purtzki Johansen & Associates advisor.

The post The family trust: is now the time? appeared first on Purtzki, Johansen & Associates.

It can be a real challenge getting cash out of your dental corporation with dividend tax rates as high as 48%.  It’s never fun giving almost half of your practice cash flow to the CRA after you’ve made the draw from the dental corporation.

For some practice owners, it may be time to tap into the tax-free portion of the practice’s goodwill.

The amount you could save depends on the market value of the goodwill and your personal circumstances. The average tax savings are:

To access the tax-free portion of the goodwill, all you need is a new dental corporation (Newco). Your current corporation, Dentalco, sells all the dental equipment and the goodwill to Newco.  A special tax election is filed to avoid paying tax on the value of the equipment.

When goodwill is sold by a corporation, only 50% of its value is taxable. The other 50% is non-taxable and can be paid out as a tax-free capital dividend to shareholders of the corporation. On $1 million of goodwill, that’s a tax-free dividend of $500,000, resulting in personal tax savings of about $180,000!

The tax benefits don’t stop there.  Because Newco purchased the goodwill, it can now depreciate $500,000 of the goodwill ($1,000,000 X 50%) at 5% per year.  Assuming the 27% corporate tax rate, this transaction translates to tax savings over a number of years totaling about $135,000.

If you want to know more about tapping into the tax-free portion of your goodwill, contact a Purtzki Johansen & Associates advisor.

The post Turn your practice goodwill into a juicy tax shelter appeared first on Purtzki, Johansen & Associates.

Whether or not a dentist can claim back any GST paid on their expenses has been subject to a lot of back and forth in recent years.  The courts have ruled in seemingly contradictory ways on the topic, and as a result, the CRA has rescinded a long-standing administrative position.  Here is where things stand and whether you might be able to recover some GST in your own practice.

The basics

A business with revenues that are GST-taxable generally must register and collect GST, and is entitled to recover from the government any GST paid on expenses (called Input Tax Credits – “ITCs”).  For dentists, most of the practice revenue is exempt, with the exception of

• Lab and appliance revenues (zero-rated – meaning taxable, but at 0%)
• Cosmetic procedures
• Other sales of non-medical goods (like electric toothbrushes)

In the past, some dentists could claim ITCs on a pro-rated basis, using the ratio of their total taxable income (those items above) to their total practice income.  Provided that ratio was at least 10%, the dentist would get back that ratio of the GST paid on their expenses each year.

ITCs – orthodontists

Orthodontists generally have higher appliance fees compared to generalists due to the nature of their work.  In 2017, an orthodontist named Hurd went to Tax Court to defend his position regarding ITCs.  Hurd had claimed ITCs on the basis that the service fee and the appliance fee were two separate streams of revenue – one exempt, and one taxable (at 0%).  He argued this gave him the ability to claim ITCs at a much higher ratio because so much of his practice income was technically taxable, albeit at 0%.  CRA took the other position, arguing that the provision of orthodontic services was inclusive of any dental appliances, thus making all of his fees exempt and denying the ITCs.

Hurd lost this case in 2017 and it was a gloomy day for orthodontists, who now saw they had perhaps lost the opportunity to claim back thousands of dollars in GST each year.

However, in 2021, a case called Davis was heard by the Tax Court.  Davis was another orthodontist who was claiming ITCs on the basis that the appliance revenue was a separate sales stream than the exempt service revenue.  CRA again denied the ITCs, and they wound up before a judge.

This time, the Court held that there were indeed two separate streams and Dr. Davis was entitled to ITCs related to the appliance fee portion of his revenue.  CRA appealed this decision, but in 2023, the Appeal Court upheld it, setting the precedent that orthodontists could recover ITCs in this way.

The 35% rule – orthodontists

Up until the end of 2024, in order to streamline bookkeeping, CRA allowed orthodontists to estimate their ITCs on up to 35% of treatment fees on their monthly or regular GST filings, so long as they reconciled it to the actual calculation once a year.

Once the Davis decision was published, CRA rescinded this administrative policy (effective 2025), now requiring those practices to keep detailed records of their appliance fee revenues and claim only the actual ITCs on each return.

ITCs – general dentistry

The big question is how all of this applies to general dentistry, given that Davis was specific to an orthodontic practice.  For the answer, we can look to another case, Axelrod, which occurred in 2022.  In Axelrod, a prosthodontist was trying to defend that the revenue from artificial teeth (again, taxable but at 0%) was a separate sales stream than the service of installing them.  This time, the court held that this was not the case, and that prosthodontic treatments were bundled with any lab included, and exempt from GST.  Thus, Axelrod could not claim any ITCs.

So, despite the good result for orthodontists, the result for general dentists is not clear.  CRA will likely take the narrower view that Davis does not apply to a general dentist.  Dentists claiming ITCs should be ready for fact-based CRA challenges.

The post GST for Dentists – Where We Stand appeared first on Purtzki, Johansen & Associates.

The end of 2025 is near; however, there is still time for some tax planning tips for year-end tax savings!

Trigger Capital Losses

The markets were high in 2025, and you may have triggered capital gains in your personal non-registered investment portfolio.  Review your investments to see if you have any unrealized losses which could be triggered before the end of the year. The losses would offset the gains, thereby reducing (or even eliminating) your capital gains tax.  You may also be able to carry back current-year losses to recover capital gains tax paid in any of the three previous years.  This works best if you had a high marginal tax rate in the year the gain was incurred.  The higher your tax rate, the bigger the savings from triggering losses.  Losses must be used against current year capital gains first before any can be carried back to the previous three years, or carried forward.

If your investments are held within a corporation, there are additional tax planning considerations.  Speak with your Purtzki Johansen advisor first to ensure triggering losses is still beneficial.

Should you decide to trigger losses, remember the “superficial loss” rules will require you to avoid repurchasing the same investment for at least 30 days.

First Home Savings Account (“FHSA”) Contributions

If you are planning a first home purchase, do not miss out on the FHSA benefit.  Contributions are tax-deductible, but withdrawals are not taxable if used to purchase a first home.  The deadline to contribute for 2025 is December 31, 2025. FHSA contribution room of $8,000 per year is only created once an account is opened (even if a contribution isn’t made). You carry forward unused contribution room each year. For example, if you contribute $3,000 in year one from the $8,000 of annual contribution room, you can contribute up to $13,000 in year two ($5,000 of unused room carried forward from year one plus $8,000 of participation room from year two).  For this reason, if you qualify but you don’t already have an FHSA, make sure you open an account in 2025 even if you won’t make a contribution this year.

Registered Retirement Savings Plan (“RRSP”) Withdrawals

If your retirement planning projects your mandatory Registered Retirement Income Fund (“RRIF”) withdrawals at age 72 to be significant, one planning tip is to consider withdrawing from your RRSP early to help limit the RRIF income. This could help avoid higher tax brackets in the future or worse, clawback of your Old Age Security (“OAS”) pension.  This strategy is sometimes called the “RRSP meltdown.”

For incorporated doctors, if your spouse has an RRSP account but a relatively low income, consider annual RRSP withdrawals prior to age 65 when corporate dividend income splitting is no longer restricted.  The personal tax on the spouse’s RRSP withdrawal may be lower than the tax on a dividend from the corporation to the practice owner.

Lastly, if you are 65 and without any other forms of pension income, consider converting a portion of your RRSP into a RRIF now.  RRIF income is considered pension income and is eligible for the $2,000 pension tax credit.  RRSP income does not qualify.

Donations

If you are feeling charitable, consider making any donations before December 31, 2025, to access a tax credit for 2025. If you have any investments that have grown in value in your non-registered investment account, consider donating those securities instead of cash for twice the tax benefit. Not only do you get a donation tax credit, but you also do not pay any capital gains tax on the gain.  Securities donated by your corporation can provide an even larger benefit.

Registered Education Savings Plan (“RESP”) Contributions or Withdrawals

Take advantage of the $500 Canada Education Savings Grant (“CESG”) by making a $2,500 contribution to your child’s RESP. If you have missed a previous year, you can double the contribution and receive a CESG payment of $1,000.

If your child is already attending post-secondary education and has an RESP, consider making an Education Assistance Payment (“EAP”)  withdrawal in your child’s name. If your child has little or no income, this otherwise “taxable” withdrawal will end up being completely tax-free.

The post Five Tax Planning Tips before the End of 2025 appeared first on Purtzki, Johansen & Associates.

Purchasing a dental practice is one of the biggest decisions a dentist will have in their career. We have seen dentists rush into purchasing a practice later realizing it was a mistake. Below is a sample of a due diligence checklist to ensure you get a true picture of the practice you are considering purchasing so you can ensure the clinic will be a great fit for you!

Financial Review

• Ask your CPA (one with experience in dental practices) to obtain the tax returns and financial statements for the clinic’s previous four years. Use these to identify revenue and expense trends.
• Ask your CPA to prepare cash flow projections and recommendations re: reducing clinic overhead.

Patients

• Review a representative sample of the clinic’s patient charts to get an idea of the quality of patient care, the type of dental treatments performed, any remaining treatments, patient needs, and any areas where you might increase revenues.
• Is the seller’s treatment philosophy compatible with your own?
• How does the practice monitor treatment acceptance?
• How many active patients does the clinic have, and what is its definition of active?
• What are the demographic characteristics of the patients (i.e., age, income, and location)?
• On average, how close do patients live to the dental clinic?
  • What is the likelihood that patients who don’t live close to the clinic will move to a different practice after the purchase?
• How many patients have left the practice in the last two years?
  • For what reasons did they leave?
• How many inactive patients does the clinic list?
  • What procedures are in place to reactivate these patients?
• What is the clinic’s fee structure, and is there leeway to generate more revenues?
• Where do new patients come from: referrals, advertising, social media?

Employees

• What is the salary of each staff member?
  • Are you willing and able to maintain current salaries? Are salaries comparable to the industry average?
  • On what criteria have salary increases been decided?
  • When was the last round of salary increases? When is the staff expecting another increase?
• Is on-the-job performance evaluated?
  • How often and do salary increases reflect employee productivity? If not, why not?
• Do you consider the practice understaffed or overstaffed?
  • Would you consider hiring more employees or working with fewer employees?
• Is there a policy and procedures manual?
• Does the practice maintain professional personnel files?
• Is the management structure appropriate for the size of the practice?

Facility

• Is the clinic working at, under, or over capacity?
  • How does it handle current patient volumes?
  • How many operatories are in use? Can operatories be added without a major renovation?
  • What renovations are required to improve efficiency?
• What is the overall condition and appearance of the clinic?
  • Is the facility in need of a facelift? Is work required immediately?
• Is there adequate parking for staff and patients?
• Has your legal counsel reviewed the terms and conditions of the lease?
  • What are their recommendations?
• What are the clinic’s operating hours?
  • Could office hours be expanded to include evenings and weekends?

Equipment

• Compare the equipment listed in the valuation report with what you use during your clinic visit.
• Review the equipment specialist’s report re: the state of the equipment and any necessary repairs.
  • Does any of the equipment need to be replaced? How much will it cost?
• Are there any maintenance contracts or leases on equipment?

Practice Management Systems

• What management systems are in place, and are they primarily digital?
  • If not, estimate the cost of introducing state-of-the-art dental practice software.

Production

• What percentage is hygiene production of total office production?
  • How many hygiene days are there per week?
• How many weeks are the dentist and hygienist booked out by at least seventy percent?
• How many days does the owner/dentist take off each year?
• What proportion of endodontics, periodontics, oral surgery, and implant placement is referred out?
• Obtain up-to-date production records by provider and procedure code.
• What is the monthly average of short-notice cancellations?
• How is the acceptance of treatment plans monitored?
• How many emergency patients are handled per month?

Accounts Receivable

• Obtain an up-to-date accounts receivable aging report.
  • What percentage of the accounts receivable are over ninety days?
  • Will you purchase the accounts receivable? What percentage of production are collections?
  • What is the total of credit balances owed to patients?

Future Growth

• Analyze the growth trends of the practice.
• Does the practice have a marketing or promotional program? How effective is it?
  • Is the website up-to-date? Is the clinic active on social media?

The post Practice Acquisition Checklist appeared first on Purtzki, Johansen & Associates.

If you want to sell your practice for more than you ever imagined, it’s easy, just focus on the following transition planning checklist. Remember it is never too early to start. As the Chinese proverb says, “The best time to plant a tree was 20 years ago. The second-best time is now”.

• Improve the conversion rate of phone inquiries into appointments.
• Increase the number of active patients who are scheduled for their next appointment.
• Reduce the practice’s patient attrition rate.
• Reactivate your inactive patient base.
• Hire an office manager whose responsibility it is to ensure you are meeting your practice revenue targets.
• Retain a CPA experienced in working with dental practices.
• Retain a lawyer who works with dental practices.
• Bring onboard a quarterback (i.e., a transition specialist or broker).
• Do the numbers; discover how much money you really need to retire comfortably.
• Talk to your financial planner and your CPA about setting up a worry-free retirement portfolio.
• Think about your legacy and your reputation. You worked hard to build a thriving career on your integrity. For a few more dollars, don’t let a stranger destroy it.
• Sell to a compatible person whose values you share, and who aligns with your practice philosophy.
• Have a buy/sell agreement to ensure you get a fair value for your practice when you leave.
• Ensure your team is a strong asset in the sale of your practice. If necessary, remove the “bad apples” well in advance of looking for a purchaser.
• Build a trusting relationship with the prospective buyer, without getting involved directly with the negotiations.
• Don’t be greedy. Leave some juice on the table for the buyer, it will benefit you in the long run.
• If your clinic is a little worn, consider enhancing its “curb appeal” by investing in a facelift. Hip practices sell for more.
• Consult with your lawyer before finalizing the purchase and sale agreement. Ask yourself:
  • Is there a listing of dental equipment, furnishings, and other equipment?
  • Is there a list of assets that are excluded from the purchase?
  • Does the purchase price allocation help me to minimize the tax liability?
  • If patients need re-treatment, do I have the option to either do the work without charge, or negotiate a discounted fee if the buyer does the rework?
  • Is the amount and period of time for any rework restricted?
  • Have we outlined how accounts receivable are dealt with?
  • Are accounts receivable part of the purchase price?
  • Does the agreement require the buyer to collect the receivables and remit to me promptly?
  • Have we negotiated a lower fee with the buyer for collecting the receivables?
  • Did we pay any outstanding credit balances to patients?
  • Did we ensure that there is only a minimum restrictive covenant in place, both as to geographical scope and duration?
  • Did we obtain confirmation on the lease assignment that states that I am no longer responsible in any way for the lease?
  • What is the post-closing financial and legal exposure for my “statements and warranties” in the agreement?
  • Schedule an appointment with a transition expert to make sure your transaction is stress-free and structured to allow the maximum financial benefit for your retirement.

The post Practice Sale Checklist appeared first on Purtzki, Johansen & Associates.

This happened to one dentist who learned what it means to run out of the exemption. Shortly before planning to sell, he realized the sale price of $1,800,000 would exceed his capital gains exemption limit. He did not act on the accountant’s advice to previously add his spouse as a shareholder. Now he was left with the option of postponing the sale or paying personal tax of about $147,000, which he could have avoided entirely with some planning.

Often even two exemption limits are not enough. A more flexible planning structure is needed for larger practices worth over $2.5M or for dentists that perhaps have sold or plan to sell other practices in their careers. This is where the family trust is the saviour. Any gain incurred by the family trust can be allocated to each beneficiary to utilize some or all of their total lifetime capital gains exemption. You have now multiplied the capital gains exemption.

To access the capital gains exemption, the shares must be Qualifying Small Business Shares meeting three conditions.

1. At the time of sale, 90% of the fair market value of the corporate assets must be used in an active practice.
2. During the 24 months before the sale of the shares, 50% of the fair market value of the corporation’s assets must have been used in an active business.
3. You must have owned the shares 24 months before the sale.

The 50% test can get people caught not planning for a sale. It means that at least two years before a sale, your non-practice assets (investments for example) cannot exceed 50% of the total value of all company assets. If you have excess investments, you can employ some defensive strategies to remove these investment assets ahead of time without income tax consequences. In accounting terminology, this step is called “purification”.

Letting too much cash or investments build up on a regular basis can cause your practice sale to be taxable if you are not careful and purifying regularly. Ensure your accountant has this discussion with you at least every two years to ensure you are always on track to sell in the future tax-free!

The post Multiply the Capital Gains Exemption appeared first on Purtzki, Johansen & Associates.

2024 was a year of uncertainty surrounding the potential increase of capital gain inclusion rates from 50% to 66.7%. Many clients were struggling with the decision of whether or not to trigger capital gains prior to the proposed June 25, 2024 implementation date. Some triggered large gains in advance, some were too late to act or unable to trigger gains, while others chose to avoid paying the tax upfront and deferred the unrealized gain to the future.

In January 2025, Justin Trudeau announced his resignation and prorogued parliament resulting in the subsequent delay to the implementation of these rules until January 1, 2026. While it’s certainly possible that a new government may come into power in 2025 and these rules do not ultimately pass, what is clear is that this delayed implementation date presents another opportunity to take advantage of the current lower tax rates.

It may seem counterintuitive, however deliberately triggering a capital gain can actually reduce your tax bill. Let’s use an example of a dentist that is currently in the top personal marginal tax rate and would like to withdraw an extra $100,000 from her corporation. The tax rate on regular dividend income is 48.9% therefore she would only get to keep $51,000 with $49,000 going to tax. She is wondering if there is a better way, knowing that she will likely be in the top tax bracket for many years ahead.

There is a technique often referred to as a CDA strip which can lower her overall tax cost. The key is the use of the Capital Dividend Account (“CDA”). Let’s assume she has certain stocks in her corporate investment portfolio that have doubled in value over the years with a cost of $100,000 and a current market value of $200,000. Having the investment advisor trigger a gain of $100,000 will create $50,000 of CDA room. She does not have to withdraw any money from the corporate investment portfolio. Instead, she can continue to reinvest in the same shares she previously held, but triggering the gain will end up reducing her overall taxation.

As only half of a capital gain is taxable, $50,000 is the amount that would face capital gains taxation. The corporate tax rate on passive income is 50.67%, however 30.67% is refundable when sufficient dividends are declared to the shareholders, therefore the net corporate tax will be approximately 20% or $10,000.

After tax personal proceeds calculated as:

$50,000             CDA (tax free dividend)

40,000             Taxable dividend from the company ($50,000 minus the $10,000 in corp tax above)

(19,500)             Personal tax on the taxable dividend ($40,000 x 48.9%)

$70,500             Net after tax personal funds

(51,000)             After tax personal funds of $100,000 regular dividend outlined above

$19,500             Total tax savings

As a result, triggering capital gains of $100,000 saved $19,500 of tax compared to withdrawing $100,000 without any gain!

Passive Income Grind

The gain triggered $50,000 of passive income, which is the allowable limit before the dental practice begins to lose $5 of Small Business Deduction (“SBD”) for every additional $1 of passive income that exceeds $50,000. Loss of the SBD would result in a corporate tax rate of 27% rather than the SBD rate of 11%. However, it is important to note that the increased corporate tax is not a permanent tax but only a loss of tax deferral.  The income that was subject to the higher 27% corporate tax rate can later be distributed to the shareholders as an “eligible” dividend which is taxed at a much lower tax rate of only 36.5% as compared to the 48.9% tax rate of regular dividends.  For instance, if these funds are withdrawn in the subsequent year, there is no loss of tax deferral and no increase in overall tax incurred. Therefore, consideration should be taken as to how much of a capital gain to trigger. If the first example was modified and $200,000 was needed annually, a passive income grind would result.

After tax personal proceeds calculated as:

Year 1 – $200k capital gains and $200k disbursement

$100,000           CDA (tax free dividend)

80,000             Regular dividend from the company ($100,000 minus $20,000 in corp tax)

(39,000)             Personal tax on the regular dividend at 48.9%

$141,000           Net after tax personal funds

Year 2 – $200k disbursement

$40,000             Increase in corporate tax (reduction in SBD limit of $250k x 27%-11% = $40k)

$160,000           Eligible dividend from the company

(58,500)             Personal tax on the eligible dividend at 36.5%

$101,500           Net after tax personal funds

As illustrated above, the net after tax personal funds were $141,000 in year 1 and $101,500 in year 2, totaling $242,500.  Had the $200,000 drawn in year 1 and the $200,000 in year 2 been taxed as regular dividends at 48.9%, the total tax would have been $195,500 leaving you with $204,500 after tax.  Even with the passive income grind, the tax savings of utilizing the strategy over the two-year period total $38,000!

The beauty of this tax planning is its simplicity to implement. No complicated share reorganization is involved. As long as you have investments inside your corporation with accrued gains, it’s simply a matter of how much gain to trigger and when.

The post CDA Strip – How Triggering a Capital Gain Can Actually Save Tax appeared first on Purtzki, Johansen & Associates.

Most dentists are familiar with the Tax on Split Income (“TOSI”) rules that limit the ability to split income with spouses or other family members. There are a few common exemptions where TOSI does not apply such as when the family member worked more than 20 hours per week for the practice or once the dentist has achieved the age of 65, they can income split with their spouse. However, for many these either are not an option or are too many years away to be utilized. Fortunately, there is another income splitting technique available for dentists that have accumulated a significant investment portfolio.

Second Generation Investment Income

Dividends that are received by a family member from a related business are subject to TOSI unless a specific exemption applies. However, if the practice income is later reinvested and produces a second level of income (known as second generation income) that is no longer considered to be income earned from the original related business. For example:

Dr. Smith earns $400,000 per year in his dental practice and knows that because his spouse is not active in his business he cannot pay a dividend to her from his practice income without TOSI risk. However, over the years he has accumulated a significant corporate investment portfolio of public company shares worth $2,000,000 in his holding company which he and his wife are 50/50 shareholders. In the most recent tax year for his company the investments produced $50,000 of eligible dividends and $30,000 of interest income. Rather than simply reinvesting those proceeds back into more public company shares, he chose to pay $80,000 out of the portfolio as a dividend to his spouse.

Fortunately, pursuant to CRA interpretation 2018-0771861E5, second generation investment income is not considered to be derived directly from the related dental business. The $80,000 of dividend income to his spouse triggers only $2,300 of tax whereas Dr. Smith who is in the top tax bracket would have paid $32,900. Therefore simply paying out the investment income to his spouse saves over $30,000 in one year alone!

Traps to be aware of!

1. Pay the dividend

While it may be possible to declare the dividend as payable to the spouse to be paid at a later date, the safer approach is to fall within the CRA interpretation parameters and actually pay the cash from the investments returns to the spouse.

2. Don’t mix dental income with investment income

Ensure there is a clear linkage to the fact that it is the investment income that is paid to the spouse and not the dental income flowing through the holding company and out to the spouse. Contact your investment advisor to instruct them to pay this investment income, often referred to as a “sweep” where periodically they clear out of the investment returns from the corporate investment cash account to the spouse.

It would even be wise to have two separate investment cash accounts. One that has the dental practice cash flow paid into it before later investing in the stock market. The second cash account is for any distribution of the investment income paid out as part of the “sweep” as noted above. This avoids the dental practice cash mixing with the investment income paid out.

It should be noted that the goals in this strategy can be obtained even if the investment portfolio is inside the dental practice company itself. A holding company isn’t required to meet this test although for many dentists the holding company is where most of the investment portfolio will be accumulating.

3. Is the holding company operating an investment business?

The CRA interpretation notes that the second generation income exemption does not apply if the holding company is considered to be operating a business itself. The business being that of earning investment income. While it is a question of fact whether or not an investment business exists, it should be noted that the tax court has generally held a very low bar for what may be considered a business. As a result, to mitigate risk it would be prudent to have another exemption available to protect from TOSI. Being actively engaged on a regular and continuous basis in the activities of holdco can potentially create another exemption to rely upon. Therefore, if you have a managed investment portfolio ensure the spouse is equally involved in all investment decisions, meetings, email correspondence and signing off on any filings.

The Takeaway

While it does involve being a little more diligent to ensure your investment income returns are managed carefully and any payment to your spouse cannot be tied back to the dental practice, doing so can easily save tens of thousands per year in personal taxation.

The post Income Split Your Corporate Investment Income appeared first on Purtzki, Johansen & Associates.

The end of 2024 is near, however there is still time to take care of some tax planning items to ensure you don’t miss out on year-end tax savings!

Capital Gain Loss Harvesting

In previous years, a common tip was to consider selling any stocks with losses prior to December 31st and to apply the losses against any gains that may have occurred during the year or in the previous three years. With corporations, in particular, and the new capital gains inclusion rate increasing from 50% to 66.67%, care should be taken when to realize these losses and whether they should be carried back to one of the previous three years or carried forward to eliminate future capital gains tax.   Triggering losses before the end of 2024 may result in you only saving tax at the 50% inclusion rate whereas the losses may be better utilized if they are triggered in 2025 or beyond and used to reduce the tax at the higher 66.67% inclusion rate.

A different analysis is required for individuals because of the lower inclusion rate on the first $250,000 of capital gains, as discussed below.

Should you conclude in your analysis that is to your benefit to trigger losses, the superficial loss rules will require you to avoid repurchasing the same stock for more than 30 days.

Capital Gain Triggering

On June 25, 2024 new capital gains tax rates were introduced.  For individuals, the first $250,000 of capital gains are subject to a 50% inclusion rate and any gains in excess of this amount subject to a 66.67% inclusion rate.  Most planning to trigger capital gains happened prior to that date.  However there is now a potential incentive to consider triggering capital gains annually for individuals with larger investment portfolios. Triggering capital gains up to the $250,000 inclusion rate could help avoid future capital gains at the higher 66.67% inclusion rate. To allow trades to process on time ensure any trades are completed by December 30^th. There are no “superficial gain” rules, therefore you may immediately repurchase the stock sold without waiting for 30 days as is required with losses.

First Home Savings Account (“FHSA”) Contributions

The deadline to contribute is December 31, 2024 to be able to deduct the contribution on your 2024 tax return. FHSA room is only created once an account is opened (even if a contribution isn’t made). You may carry forward up to $8,000 of unused contribution room each year. For example, if you contribute $3,000 in year one from the $8,000 of annual contribution room, you can contribute up to $13,000 in year two ($5,000 of unused room carried forward from year one plus $8,000 of participation room from year two).

See previous articles discussing the program in more detail.

Registered Retirement Savings Plan (“RRSP”) Withdrawals

If your retirement planning projects your mandatory Registered Retirement Income Fund (“RRIF”) withdrawals at age 72 to be significant, one planning tip is to consider withdrawing from your RRSP early to help limit the RRIF income. This could help avoid future higher tax brackets or Old Age Security (“OAS”) clawback.

If your spouse has an RRSP account but relatively low income, consider annual RRSP withdrawals prior to age 65 when dividend income splitting becomes available.  The personal tax on the spouse’s RRSP withdrawal may be lower than the tax on a dividend from the corporation to the practice owner.

Donations

If you are feeling charitable, consider making any donations before December 31, 2024 to be able to apply them as a tax credit in 2024. If you have any public company shares sitting in a gain position in your non-registered investment account, consider donating those shares for twice the tax benefit. Not only do you get a donation tax credit, but you also do not pay any capital gains tax on the gain.

For large donations, be wary of the new Alternative Minimum Tax rules that took place on January 1, 2024 that may limit some of the benefit of the donation.

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