Cash Flow Crunch Looming for Some Professional Clients
Proposed changes to the 2017 CRA budget significantly affect how a large portion of the professional community in Canada pays tax. Particularly clients in the accounting and legal community may experience a cash flow crunch as changes roll out.
Under the rules of the Income Tax Act (ITA) , certain professionals, such as accountants, dentists, lawyers, and medical doctors, can elect to exclude in computing income (work completed over months or years) and defer taxation on that income until the entire project is completed. This is commonly referred to as bill based accounting.
Budget 2017 proposes to eliminate this deferral opportunity by eliminating the ability of professionals to elect to use billed-based accounting. The measure will apply for taxation years beginning on or after March 22, 2017, to be phased in over a two-year period to mitigate the effect of the changes on taxpayers.
The fear for these types of clients is cash flow shortage that will come at tax-time when there is a shortage of cash on hand to pay owning taxes. That’s because there’s a time laps between when the work is billed and when the professional must pay tax.
Professional clients following a Behavioural Cash Flow Plan that has been stress tested annually by their advisor will go unaffected by the changes to Section 34 of the ITA as foundational safeguards will already be in place.
The silver lining for professional clients experiencing inefficient tax planning waste is their option to turn to a Certified Cash Flow Specialist™ to triage their situation and develop a customized Behavioural Cash Flow Plan. The plan is a powerful tool to leverage their cash flow and shield them from unforeseen changes to tax strategies or market factors.
If you would like to learn more about Behavioural Cash Flow Planning™ request a fit consultation and find out how it can be incorporate into your practice.