Anthony Layton MBA, CIM

Chairman & CEO, Portfolio Manager

Peter Guay MBA, CFA

Portfolio Manager
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  • Montreal, Quebec H3Z 3B8

Professional Incorporation: Budget 2018 Changes


After much fear and trepidation, the changes to private company taxation were much less punitive than expected in the latest Federal Budget. What Finance Minister Morneau had originally proposed to do back in July of 2017 was heavily watered down

If you’re a professional with a corporation, or a small business owner, the budget made two changes that affect you. One change might reduce your access to the small-business tax rate, and the second involves a small change to the tax integration mechanism known as Refundable Dividend Tax on Hand. This second change is quite a bit more complex, and has a relatively smaller impact, so I’ll leave it to another video. So how have the Feds reduced access to the small business tax rate? 

Let’s start with a little background. Until the 2018 Federal Budget, corporations paid 10% federal tax on the first $500,000 of active business income, and 15% on the excess. Quebec charges 8% on the first $500,000 of business income and 11.7% on the excess. So, the combined tax rates for Quebec-based corporations were therefore 18% and 26.7% respectively. 

  < $500,000 > $500,000
Federal 10% 15%
Quebec 8% 11.7%
Combined 18% 26.7%


Now Quebec had already put measures in place to limit access to their small business tax rate. Essentially, you must have at least 3 full time employees in your Quebec based corporation, in order to gain access to the Quebec small business tax rate. 

This effectively removed access to the low provincial rate for all incorporated professionals, like doctors and lawyers. 

The Feds, on the other hand, hadn’t put any such measures in place, but have been increasingly concerned about the tax advantage that professionals were getting through their corporations. So here’s what they did: For every $1 of investment income over $50,000 that a corporation earns, the small business income tax threshold will be reduced by $5. If you do the math, you lose access to the small-business tax rate completely once your investment income reaches $150,000 in a given year.

So once the investment portfolio inside the company is over about $1 million, you’ll likely have more and more of the business income taxed at the higher rate. When you reach a portfolio of $3 million, you’ll likely lose access to the lower tax rate completely.

There is a bright side to all this; these changes will apply in 2019 so that gives us a little time to figure out how you’re affected and what you can do with your business to prepare for the changes.

By: Peter Guay | 0 comments

Tony’s Take: Misguided Beliefs

It’s worse than we thought

It’s no secret many investors underperform the market indexes with disastrous consequences for their retirement savings.

The list of bad investing behaviour is unfortunately all too familiar:

  • jumping in and out of investments
  • buying high-fee, actively managed funds 
  • chasing returns
  • failing to broadly diversify portfolios

We know these are losing strategies thanks to decades of academic research. So why don’t more investment advisors steer their clients toward better, more rational decisions? 

I’ve always put a large share of the blame on conflicts of interest, as have a lot of other industry observers. Advisors sell inappropriate, expensive investments because they are compensated to do so. That’s bad, but at least it’s understandable.

An alternative explanation for poor performance

Now, there’s another explanation for the poor performance that turns out to be even more troubling. It’s contained in a remarkable recent study entitled The Misguided Beliefs of Financial Advisors.

The study found many advisors are labouring under dangerously misguided beliefs. Those beliefs are costing not only their clients, but the advisors themselves, untold millions in squandered savings.

How do authors of the study know? They looked at data from two large Canadian financial institutions, comprised of the trading and account records of more than 4,000 advisors and 500,000 clients. 

Importantly, the data included the personal investment records of the advisors themselves. What the paper reveals is that most advisors indulge in the same harmful investment behaviours in their personal portfolios as the clients they advise.

Advisors indulge in harmful behaviors

“They under-diversify, trade frequently and favour expensive, actively managed mutual funds with high past returns, despite evidence that these strategies often underperform,” the paper says.

So, it’s reasonable to conclude that sheer advisor incompetence plays a huge role in the poor performance of many investor portfolios, according to this study.

That doesn’t mean we should stop fighting to get conflicts of interest out of the investment industry. But, as the study notes, solving the problem of misguided beliefs would require improved advisor training, screening and licensing requirements. 

For individual investors, this study is just one more reason to seek out advisors who manage portfolios based on time-tested, scientific principles of investing. If you’re a PWL client, you’ve already arrived.

By: Anthony Layton | 0 comments

Changes to the Voluntary Disclosure Program

So here’s the thing about tax planning: things change on a pretty regular basis. It’s usually right around that time when you think you’ve got a handle on your situation that new guidelines are put in place. That is what happened this past December with the Voluntary Disclosure Program but don’t worry, I’ll take you through those changes.

In my previous video I talked about the Voluntary Disclosure Program offered by the Canada Revenue Agency, what it is, and who can use it - I’ll link to it below. In this video, I want to discuss what the recent changes to the program mean for Canadians who might be considering the VDP. 

Changes were announced in December 2017 to the Voluntary Disclosure Program that came into effect in March 2018. The reason for these changes was to tighten the eligibility criteria to access the program. In other words, it’s going to be harder for those who intentionally avoided paying their taxes to take advantage of and benefit from the VDP.  

The changes have created two tracks for disclosures. The first track is the Limited Program, which will offer, as the title says, limited relief to taxpayers who have intentionally avoided paying taxes. Under the Limited Program, taxpayers will not be referred for criminal prosecution with respect to their disclosure and they won’t be charged gross negligence penalties.

The second track is the General Program, where the same rules apply regarding criminal prosecution and gross negligence penalties, but unlike the Limited Program, the CRA will provide partial relief of interest for years preceding the three most recent years.

Look, the CRA doesn’t want to scare you but it does want you to pay your taxes. It’s getting better at finding tax evaders and those who are found tend to pay heavy penalties. Better to come clean before they come after you!


By: Peter Guay | 0 comments