There certainly are not too many Canadians that would openly say they enjoy paying taxes although most people that don’t like it also realize that it’s the taxes they pay that allow them to enjoy many of the benefits that this country has to offer.
What has become the real trend is more tax payers are utilizing creative tax planning. This is being done by implementing a bunch of small tax strategies which is the better and only way that the average tax payer can do. It means incorporating all of the potential tax breaks that may be available to an individual depending on their circumstances. One of these may be the Employee Profit Sharing Plan.
The EPSP allows the owner of a business share their profits with their employees. The concept is that business people would rather reward their employee’s rather than pay the money to the CRA. These contributions are tax deductible.
There has been some unfairness in some cases with employees receiving substantial employee profit sharing benefits while others don’t. The unfair payments have been suspected of payments being made to employers who really are not dealing at arm’s length with the employee. Based on this the CRA rules went under some amendments.
The basic way that it works is the money that is going into the EPSP is held in trust by a trustee then allocated to the specified employers within the taxation year. The amounts that the recipient receives are computed in the income of the beneficiary, so they are not hit with additional tax when they actually receive the money.
As it was, there were no limitation on the amount of the contributions into the EPSP that could be made. Now there are changes. It means that when an amount being paid to one specified player reaches a certain amount, then a new tax will have to be paid by the recipient on this excess amount.
This is some ways is disheartening to many employees who work hard to build up their profit sharing plan. Even so, it can still be a great way of having extra money that isn’t really counted on or is forgotten about, when the payment time comes.
Speaking with your Toronto accountant about the advantages of an EPSP and the new thresholds will give you a greater understanding of whether this is good tax planning move for you.
