The Budget 2022 is expected to be announced very soon, meaning wealthy families, individuals, and business owners should look into tax saving strategies to take advantage of now.
When the budget is announced in spring 2022, there is expected to be an increase in tax due to the federal government needing to deal with the huge debt accumulated over the course of the pandemic. Countries like the United States and the UK have already introduced tax increases, so it is expected that Canada will follow suit.
MacMillan Estate Planning founder and CEO, Sheri MacMillan, spoke to Global News to discuss tax mitigation strategies ahead of the budget announcement:
We are encouraging families to take advantage of 3 primary ways that we already have in legislation to help mitigate income tax in their estate on an annual basis, and in the future when the time comes to transfer their estates to their loved ones.
Tax Shelter 25% of Net Worth
This strategy is missed by the majority of Canadians who have a net worth of $1 million or higher.
An estate plan allows up to 25% of a family’s total net worth to be tax sheltered. This means that if a family has a net worth of $10 million, they can tax shelter $2.5 million, which could then double over a lifetime and be transferred to the children or other family members tax-free. The family would also not be paying annual tax on that money as their estate continues to grow. At MacMillan Estate Planning, we call this strategy our Giant Tax-Free Savings Account for families.
The opportunity to utilize this strategy, like the others mentioned, will need to be seized soon to prepare for the 2022 budget announcement.
Family Trusts
There are many clever ways to use trusts to save on tax that the CRA may be looking to target in the future.
A strategy we recommend is to use trusts alongside the low prescribed interest rates to reduce the tax bill of a family. This could involve a family business being owned by a trust in order to save money for the whole family on taxes.
It is also typical to use an estate freeze with a family trust. You can learn more about estate freezes here.
Investment Trusts
The last couple of years have brought a lot of uncertainty for investors looking to protect and grow their wealth. As such, now is not the time to do anything rash or impulsive, but instead to maintain a long-term perspective.
Investment trusts can take advantage of principal guarantees to deliver great growth and fund a couple’s retirement without all the risk. We recommend that our clients use this strategy to protect a percentage of their nest egg against market fluctuations, rather than the typical instruments a bank would offer.
Investment trust opportunities should also be locked in now, as the changes to taxation that the CRA makes are unlikely to be generous to the wealthy.
With only a short while to go before the Canada Revenue Agency announces their 2022 budget, tax mitigation strategies should be looked into now, before it’s too late. The best people to talk to about these kinds of strategies are estate planners who can listen and learn about your particular circumstances and offer advice and strategy suggestions.
Those who only have a will in place right now could be majorly losing out by not having a proper estate plan that can mitigate taxes.
For a complimentary consultation with one of our estate planners to discuss strategies that may benefit you, visit www.macmillanestate.com or call us on 1-833-266-6464.
