The Federal Budget 2023 released on March 28th presented some relief for lower-income families with incentives such as the Grocery Rebate and the government cracking down on excessive service fees. There are increases to funding for Health Care, which is all fine and good until you see that it increases the deficit, which is already heavy from the Pandemic measures put in place over the last 3 years.
How does the 2023 budget affect affluent families? One notable measure to be aware of is the increase to the Alternative Minimum Tax (AMT) raising it 5.5% from 15% to 20.5% starting in 2024. This targets higher wage earners, specifically those earning over $300,000 per year. Wealthy families can easily end up in this category should they choose to make changes to their businesses and investments.
What can wealthy families do to mitigate the tax they are currently paying and how will the newest budget measures affect them? Affluent families, individuals and businesses do well to explore tax-saving strategies to take advantage of now.
There are three 3 primary ways that we already have in legislation to help mitigate tax in families’ estates on an annual basis, and in the future when the time comes to transfer their estates to their loved ones upon their passing.
Tax Shelter 25% of Your Estate
It is allowable to tax shelter up to 25% of a family’s total net worth using this strategy. 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 the tax-sheltered funds as their estate continues to grow. At MacMillan Estate Planning, we call this strategy our Giant Tax-Free Savings Account.
Family Trusts and Estate Freezes
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 for income splitting among family members. A family trust can typically be done along with an estate freeze which freezes the growth of the business and defers tax into the future. Family members involved in the business can use their Lifetime Capital Gains Exemptions to save further. This could involve a family business being owned by a trust in order to save money for the whole family on taxes.
Investment Trusts
The recent bank collapses in the US on top of the volatility of 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. Depending on the investment you choose, it could have tax benefits such as using dividends and capital gains with a more favorable tax rate.
Want to learn more? Book a session with one of our Estate Planners to discuss your circumstances. For a complimentary consultation with one of our estate planners visit www.macmillanestate.com or call us at 1-833-266-6464.
