How advisors can benefit from upcoming tax changes

How advisors can benefit from upcoming tax changes

How advisors can benefit from upcoming tax changes The federal government’s proposed tax changes have been met with consternation by many business-owning Canadians, but there could be a silver lining for advisors. The government plans to tighten in three areas in which some business owners currently reduce taxes: income splitting with family members, the use of passive investment portfolios within a private corporation, and the conversion of a regular income into capital gains.

“There is a group of business owners out there who are concerned about what these changes are going to mean for them, their employees and their families,” says Carrie Kimberley, Director, Practice Management at Credential Financial. “The proposed changes have presented a real concern among a certain segment of Canadians.”

Kimberley does believe, however, that the proposed tax changes present an opportunity for savvy advisors. “From an advisor standpoint, there are opportunities to deepen their client relationships and provide the added value that advisors need in order to stay competitive,” Kimberley says. “My recommendation for advisors is to make sure they understand what the changes are and, also, understand within their own book of business which of their clients will be impacted.”

With more clients expecting a holistic service from their advisors, utilizing a team approach to tackle issues like the proposed tax changes is a smart strategy. It’s almost impossible to assist a client with every single wealth management need, and advisors should be leveraging the expertise of tax experts, accountants, and lawyers in order to deliver the best result.

“For advisors, it is a good opportunity to be part of that discussion so that if changes do happen and the client wants to look at alternative strategies, the advisor is a part of that,” Kimberley says.

On two of the three new tax proposals (the conversion of income into capital gains and income ‘sprinkling’), there isn’t really anything that can be done – there is no way around the government’s proposed changes. However, on the third proposed change (the use of passive investment portfolios within a private corporation), advisors should definitely be thinking about how they can help.

Under the new rules, any gains accrued to shares held by a family trust after 2017 would not qualify for the capital gains exemptions.

“We’re still in the consultation period, and nothing has been finalized as of yet, so it makes sense to wait before implementing anything serious,” Kimberley says. “However, you want to anticipate how certain changes might impact different clients in different ways. If your clients know you have their best interests at heart that is going to increase trust and loyalty. That’s what will differentiate you from the rest, because your clients will stay with you no matter what.”

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