U.S. Estate Tax Exposure

What may come as a surprise to many Canadians is that they could be liable for U.S. estate tax. The estate tax is based on fair market value of the property owned at the time of death and the tax is assessed on U.S. situs assets. These assets include real property located in the U.S. as well as shares of U.S corporations, either private or public.

If an individual’s U.S. situs assets are more than 60,000 USD then there’s a requirement to file the estate tax return with the IRS. There are various exemptions available, such as a credit that shields the first 5,340,000 of worldwide assets (in 2014, this amount is adjusted for inflation) which means that there’s not necessarily a tax liability however it does not remove the obligation to file the return. This is of particular importance if as a result of death there will be a transfer of title on real estate or if there are investment assets with a U.S. company. To distribute the assets in accordance with the will, the financial institution or lawyer will ask for a transfer certificate. This is a certificate issued by the IRS which shows that the Estate has complied with all the requirements and has no outstanding obligations thus allowing for the transfer to take place.

There are numerous complexities depending on the individual’s circumstances and cannot be covered in general terms. It is important that the estate tax is not forgotten and is appropriately considered when the purchase of assets is planned. Failure to consider this tax could result in a substantial tax liability that could otherwise be mitigated or avoided altogether.

Questions?

General Enquiries: 613-726-7788

Fax: 613-729-4477
general@mcintyreca.com

McIntyre & Associates Professional Corporation

200 – 900 Morrison Drive

Ottawa, ON

K2H 8K7 

Principal Residence

One of the tax rules that most taxpayers are aware of, though not necessarily in detail, is that there’s an exemption from tax on a gain from a sale of the house they live in. If an individual (or family) owns one house that they live in then the rules are fairly straight forward however complications arise as soon as there’s some deviations in the scenario. What the rules actually state is that the exemption is available for a housing unit that the individual or family unit ordinarily inhabits. This means that there’s a limit of one dwelling per family on which the exemption can be claimed. The designation of the exemption is done for each year that the property is owned. For example, the family owns a house for 10 years and a cottage for 5 years. The exemption is first assigned to the house as that’s the only property owned for the first five years and then a decision has to be made whether the house or the cottage gets the exemption for the 5 years that both properties are owned at the same time.

When there’s only one property then the situation is fairly simply however as soon as another property is introduced then there’s potential for a tax liability. It’s best to review all of the properties and their potential gains prior to making any elections.

Questions?

General Enquiries: 613-726-7788

Fax: 613-729-4477
general@mcintyreca.com

McIntyre & Associates Professional Corporation

200 – 900 Morrison Drive

Ottawa, ON

K2H 8K7 

Principal Residence – Rental property

A common scenario is that when an individual (or family) moves to a new house, the old house is rented out rather than sold. What happens in that case is called a “change in use”, the old house changed its purpose from being used as a principal residence to a rent income producing property. This change in use triggers a deemed disposition and a gain is calculated between the original purchase price and the fair market value at the time of the change of use. The property could fall under the principal residence exemption so no actual tax is paid on the deemed disposition. If the rental property is sold 2 years later then the gain is calculated between the sales price and the fair market value of the property at the time of the change in use. There’s an election available which allows the property to still be designated a principal residence for up to 4 years following the change in use, provided that no deduction is taken for amortization when calculating the rental income from the property. Filing this election means that the new house or the old house (up to 4 years) can be used as a principal residence and is eligible for the exemption.

There’s also the possibility that the opposite happens. An individual (or family) move into a housing property which was previously rented out. In this scenario, there’s a deemed disposition for the property. There’s an election available which could defer the gain on the change in use until the property is ultimately disposed of.

There are a number of factors to consider when making the decision to designate one property over another as a principal residence. Things like potential gain in the future, current tax liability and the length of time the property has been owned or will be owned are all factors which could significantly impact the decision.

Questions?

General Enquiries: 613-726-7788

Fax: 613-729-4477
general@mcintyreca.com

McIntyre & Associates Professional Corporation

200 – 900 Morrison Drive

Ottawa, ON

K2H 8K7 

Alter Ego Trusts

An alter ego trust is an inter vivos created after 1999 by a settlor who was 65 years of age or older at the time the trust was created. A key property of this type of trust is that the settlor is the only one entitled to receive any income or capital distributions from the trust during his or her lifetime. It is only upon death of the settlor that the property passes to a beneficiary. This type of trust is typically used to avoid probate fees (which are charged at 1.5% on assets over $50,000 in Ontario) since the trust assets do not formally pass into the estate.

However there are some drawbacks to using this type of trust. The alter ego trust cannot use the capital gains exemption available in respect of qualifying property such as small business company shares. In addition, any losses within the trust can only be used to offset the gains of the trust and do not attribute back to the individual. In the year of death, capital losses can be used to offset non-capital gains in the year of death or the preceding year. Depending on the makeup of the investments, this could be a substantial benefit which may be unavailable. The alter ego trust does not form part of the Estate and therefore the assets cannot be used to form a testamentary trust. This is a type of trust that forms on death of a taxpayer and unlike an inter vivos trust, has the benefit of the marginal tax rates that apply to individuals. The potential savings are up to $17,000 per year however recently CRA has been discussing limiting the access to the marginal tax rates for a period of 36 months from the date of death.

Provided that the most common use of the alter ego trust is to avoid probate fees, the trust will typically have more than $500 of income and therefore would be subject to the annual filings requirement. Ensure that review both the benefits and the drawbacks to this type of arrangement to ensure that it meets your needs.

Questions?

General Enquiries: 613-726-7788

Fax: 613-729-4477

general@mcintyreca.com

McIntyre & Associates Professional Corporation

200 – 900 Morrison Drive

Ottawa, ON

K2H 8K7 

A Tax Effective Way To Pay Off Your Med School Debt

You’ve just finished your residency and have finally started practicing medicine. Congratulations!

If you’re like most people finishing med school, you have a pile of student debt, which is weighing on your mind. You’re probably also getting lots of advice from colleagues, family, friends and financial planners.

Your first instinct might be to pay it down as fast as possible. Let’s call this the traditional approach. It’s a good strategy, but it might not be the best plan.

Another strategy is to set up a medical professional corporation that will enable you to leave money in the corporation and pay taxes at a lower rate and invest the savings. Let’s call this the combined approach.

In order to explore the difference between these two approaches to paying off your medical school debt, let’s start with certain assumptions based on common scenarios that we often see.

• Debt is at $100,000 and interest is being accrued at 3%
• Annual income from medical services is $200,000
• Your spouse contributes $25,000 to the household income
• Your annual family budget for personal expenses, mortgage, travel, clothing etc. is $80,000
• You have elected to be remunerated using a growingly popular dividends only option (using 2013 tax rates)
• Investments are assumed to be earning 6% per annum tax effected down to 3%.

The Traditional Approach

The traditional approach involves putting your head down, working really hard and paying off your debt as fast as possible. With this option, you would only incorporate once your debt is paid off. The debt would be fully repaid during the middle of year two. By the end of year three, there would be $176,854 in your corporation’s investment account.

In this scenario you would earn all of your income via self employment in the first year. Once you have paid your personal expenses and personal taxes you would be able to put $68,658 towards your debt, but there would be no money left to invest. In year two, you would spend part of the year self-employed, pay off the remainder of the debt and then you would incorporate in the middle of the year.  The rest of the year you would be paid via dividends of $13,654 from your corporation. In year three you would earn the full income within the corporation and pay yourself dividends in the amount of $59,000. The remaining funds would remain in the corporation to be invested.

The Combined Approach

The second option is called the combined approach. This option involves setting up a medical corporation early and paying yourself enough dividends to cover your personal expenses. Additional dividends are paid out (to be used for debt repayment), only until you reach the top marginal tax rate. The reason for doing so is that once you go over that top marginal tax rate you would pay more in tax than you would in interest on your loan.

The debt in this scenario is repaid by the end of the third year rather than the second year. However, at the end of year three you have $203,685 within your corporate investment account.

In this scenario you would pay yourself annual dividends right from the start – $105,000 in years one and two and $102,000 in year three. After paying personal taxes and personal expenses, the rest of the money would go towards paying off personal debt.

The total difference yields a tax savings/deferral of $26,831 over 3 years. In order to be accurate, we must also factor in the additional corporate accounting costs you would incur by incorporating one year sooner. These fees run between $2,000 and $3,000, so the total benefit would actually be $23,831- $24,831. This approach works for many situations and in certain circumstances the benefits can be much larger. For example, if your spouse is earning lower or no income, you can income split through the corporation to further increase the tax savings.

If you think this approach might work for you, be sure to speak with a qualified accountant or tax practitioner to find out what steps you’ll need to take.

By Larry Hasson CPA, CA

lhasson@mcintyreca.com

613-726-7788 ext.249

McIntyre & AssociatesProfessional Corporation
200 – 900 Morrison Drive
Ottawa, ON
K2H 8K7

Our Fall 2015 Publication is Now Available

What you will find in our new publication:

• Common U.S. - Canadian Tax Issues "What is the substantial presence test? and does it involve me?"
• CRA's Prescribed Interest Rates "What will I owe if I am late on my income tax payments?"
• What' s New at McIntyre & Associates
• New and Improved McIntyreca.com just for you!

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Please Note: Publications are in PDF file format.

Our practice focuses on clients in the healthcare profession, technology sector, real estate development & construction, and high net worth individuals.

Expertise

The team at McIntyre & Associates is well-suited to assist businesses in any sector in the Ottawa region – from services, to manufacturing, to associations and not-for-profit organizations. Our client base is reflective of the diverse nature of doing business in Ottawa. Over the years the firm has developed specific expertise in each of the following areas. This expertise, borne from years of experience, can easily extend to other sectors providing unique insight into client needs and challenges.

Healthcare & Other Professionals

We have extensive experience working with professionals – with insight into their priorities, challenges and goals.

We are very familiar with the special tax rules for professionals.

As professionals ourselves, we understand your commitment to building a successful practice and achieving your goals.We can assist you with the startup of your practice (potential incorporation) through to retirement, and all of the important decision-making in between.

Our extensive experience with professionals means we can advise and assist you in making the right decisions for your practice.

Real Estate Development & Construction

We have a thorough understanding of issues specific to the real estate and construction industries.

Whether it’s tenant inducements, holdbacks, work-in-progress, or the need for bonding, we know the treatment of the tax and accounting issues. With our years of experience we are confident we can work with you through any purchases, sales, construction or renovation projects.

High Net Worth Individuals

As a HNWI we can assist you with your ongoing tax compliance and planning.

We have years of experience and we understand the tax issues related to HNWIs.
We can advise you on income splitting strategies, capital gain and loss planning, estate planning, and other tax issues specific to HNWIs.

Technology Consultants

Whether you are a local IT company or an independent contractor, we can help you as we have years of experience in this area.

We know the tax issues from both sides – the IT company and the independent contractor.
We have a solid understanding of your industry and how to address your key financial decisions.

Start Ups and New Businesses

Starting a business can be an exciting and an overwhelming process. You may need assistance with developing a business plan or financial/cash flow projections for potential investors. As Mcintyre & Associates has worked with many startups and new businesses over the last 30 years, we are uniquely experienced to help assist with the process.
As your resources are limited, McIntyre & Associates has created a new program for qualifying startups. Should you need more information or feel that your business qualifies, please feel free to contact us and we will set up a meeting to get you on your way!

Visit our website today!

We are looking for a new recruit!

McIntyre and Associates Chartered Professional Accountants are hiring, take advantage of this rare opportunity to become part of our team! 

We are looking for individuals who fit the following:
Duties/Responsibilities:
• Build and maintain professional relationships with clients
• Coordinating workload and deadlines for numerous clients
• Client accounting including: processing of accounts payable and accounts receivable, general journal entries and bank reconciliations
• Payroll processing for salaried and contract staff (including source deduction remittances and annual reporting for T4s and EHT)
• Preparing year-end supporting schedules (i.e. accruals, prepaid expenses, capital assets and long-term debt)
• Preparation of HST returns
• Setting up new clients in Simply Accounting and QuickBooks
• Planning and preparation of year-end compilation engagements and corporate income tax returns

Qualifications The successful candidate must have:
• A minimum of 2-3 years experience in a public accounting firm
 • A strong knowledge of general accounting
• Excellent knowledge of QuickBooks and Simply Accounting
• Experience in payroll preparation and knowledge of applicable payroll legislation
• Experience in preparation of year-end compilation engagements using Caseware/Caseview
• Familiarity with preparation of personal and corporate income tax returns using Taxprep
• Superior organizational skills, the ability to prioritize and manage deadlines
• Excellent communications skills, both written and verbal

Take a look at Our Industry Canada Profile.

Will I Have to Pay Taxes If I Sell My Cottage?

If I sell my cottage, will I have to pay capital gains tax?

 

This is a question that we hear quite often at this time of year. The answer is: it depends. When you plan to sell your vacation home, there are several factors to consider.

It is a good idea to determine what the capital gains tax would be on the property and whether it... READ MORE

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We invite you to visit our publications page on our website to access the 2015 Ontario Budget online Budget Commentary

http://www.mcintyreca.com/commentaries/McIntyre_Associates_2015_Ontario_Budget_Commentary.pdf

McIntyre & Associates Professional Corporation

Click the following link to view the 2015 Federal Budget Commentary provided by McIntyre and Associates.
http://www.mcintyreca.com/commentaries/McIntyre_Associates_2015_Budget_Commentary.pdf

Look @ What People are Saying

They set up a tax-effective structure for us – excellent ideas and great execution!
Nasr Salib - Owner
Professional Physiotherapy Centres Inc.
www.prophysiotherapy.com
_____________________________________________________________________

The tax advice we get from McIntyre & Associates is invaluable to us – they know tax!

Dr. Daniel Seller & Dr. Heather Brown
Dental Practice
www.seller-brown.ca
_____________________________________________________________________

With McIntyre & Associates, it’s more than just numbers but the analysis behind them.
Jim Saint
J.R. Saint & Associates
_____________________________________________________________________

Beyond the usual excellent accounting support, McIntyre & Associates also assist me with complex financial models and tax advice that is integral to the service I provide to my own clients.

Peter Nicholson, Owner
Wealth Creation Preservation
and Donation Inc.
www.wcpd.com
_____________________________________________________________________

McIntyre & Associates not only help with my monthly and year-end statements but also provide crucial advice in areas such as R&D claims and corporate restructuring. With everything, the service and thinking is excellent.
Kent MacLeod, Owner
NutriChem Pharmacy Ltd.
www.nutrichem.com
_____________________________________________________________________

Our family business has been with McIntyre & Associates for two generations. They not only understand the construction industry but how best to service a family-owned enterprise.
Michael Nicolini, Owner
Nicolini Construction Ltd.
www.nicolini.ca

Have you met our team?

We at McIntyre & Associates
focus on clients in the healthcare profession, technology sector, real
estate development & construction, and high net worth individuals.

Jim McIntyre CPA, CA, TEP | Director: As
a founding director, Jim focuses on taxation and tax planning. Jim
works on the leading edge of new trends, policies and procedures. A
career accountant since 1977, has his Bachelor of Commerce from
Concordia University and has also received his Chartered Accountant
designation in 1979 became a registered trust and estate planner in
2000.



Judy McIntyre Manager: Is
responsible for the accounting services for the firm, she is also in
control of HR and administration. Judy begun her public accounting
career in 1984 and is committed to delivering a high level of service
and takes ongoing professional development courses to meet the
specialized needs of clients.



Gabe Poirier BComm, CGA | Manager: Gabe is responsible for Customized Account Management services for the firm.
Fluently bilingual, Gabe began his career as an accountant in 1986. He
holds a Bachelor of Commerce from the University of Ottawa and obtained
his Certified General Accountant designation in 1992. In addition to a 3
year period working at a large accounting firm in the late eighties,
Gabe has worked for CA firms since 2000.



Jennifer Brownlee CPA, CA | Director: As a director of McIntyre & Associates, Jennifer oversees assurance services. Her expertise in the area of financial reporting and assurance services enables her to provide quality, leading-edge business advisory services to clients of all types.
Jennifer began her career as an accountant in 1985. She holds a Bachelor
of Commerce from Carleton University and joined the firm after
obtaining her Chartered Accountant designation in 1987.



Brent Hiscoe CPA, CA, MBA | Director: As a founding director of McIntyre
& Associates, Brent provides accounting and auditing services to a
wide variety of owner managed businesses and not-for-profit
organizations. Brent oversees all tax planning and compliance matters
for the firm's tax department. Brent began his career in 1986 and holds
an MBA from the University of Ottawa and received his Chartered
Accountant designation in 1988.



Larry Hasson CPA, CA, BSc | Director: 
Larry joined the firm in 2009 after working at a national firm for two
years. His area of expertise is assurance engagements, including IFRS
(International Financial Reporting Standards) financial statements.
Larry began his career as an accountant in 2007. He holds a Bachelor of
Science from the University of Western Ontario and received his
Chartered Accountant designation in 2010. Larry has completed the
Canadian Institute of Chartered Accountants In-Depth Tax course.

We are proud to announce our new website: Coming Soon!

Taxes are upon us again!

McIntyre & Associates’ client-centric services extend to a wide range of accounting, auditing, tax and consulting areas. Our team of professionals has the knowledge and experience to assist clients with every stage of the business cycle - from starting to sell to succession planning.

But it does not stop there.

We are working very hard to bring a cleaner, simpler new look to our website.

We will let you know when it has arrived!