To get the most benefit from tax planning strategies, you should begin now before the end of the year. This will help put your business in a better position to minimize income tax for 2019 and future years.

Here are 5 important strategies to bear in mind when planning the taxes for your corporation.

If you feel that you may benefit from any of these strategies, please contact us now as we would be very happy to assist you with your business year-end planning.

1. Pay Your Family Correctly

As a business owner, you probably already know the value and importance of properly paying your family members. When determining the best mix of salary versus dividends for you and your family, you should consider the personal tax rate, personal cash requirements, your company’s tax rate and the advantages of deferral.

This decision-making process has become more complicated because of the new TOSI Tax On Split Income rules. These rules restrict how a private corporation can pay family members by unfortunately applying a high rate of tax to certain types of income, especially dividends paid from a private corporation. If the TOSI rules apply, then the advantages of income splitting can disappear. Fortunately, there are still situations where you can successfully split income with family members. The TOSI rules are very complicated so be sure to contact us now specific confidential advice concerning your family and your business to avoid costly mistakes.

Since 1982, we’ve been helping businesses save money and avoid costly mistakes. Our full-service CPA firm combines the technical knowledge of Chartered Professional Accountant with entrepreneurial mindset of Strategic Business Advisor.

TAX TIP      When paying family, always remember that salaries should be reasonable and commensurate with the services they perform. A good rule of thumb is to pay them what you would have paid an unrelated third party and to keep adequate documentation to support such payments. We can help you calculate reasonable salaries that your Company will pay your family members so please contact us now.

2. Buy Depreciable Assets Before Year-End

If you intend to purchase depreciable assets for your business such as machinery and equipment or vehicles, amongst others, you should try to do so before the end of your fiscal year. The reason to do this is so that your business can claim tax depreciation or CCA Capital Cost Allowance in order to reduce your Company’s income and thus save tax. Please note that such assets need to be acquired and “available for use” in this fiscal year in order to claim CCA for the year.

There are new Accelerated Investment Incentive rules to obtain special enhanced higher-rate first-year CCA tax depreciation if your business purchased eligible property after November 20, 2018.

If you purchase such capital assets before the end of your fiscal year, you may be eligible for faster tax write-offs of these investments.

3. Understand the Small Business Deduction

The SBD small business deduction helps to reduce the corporate tax rate for your business, which creates a bigger tax deferral than for regular business income taxed at the general rate.

As a result, the SBD is one of the most common tax advantages available to a CCPC Canadian Controlled Private Corporation. The small business limit is presently $500,000. This enables you to receive a significant tax deferral where active business income is retained in your Company.

Recent changes to the tax rules have significantly expanded certain restrictions. For taxation years the begin after 2018, your Company faces new restrictions.

For example, if your CCPC earns investment income over a $50,000 threshold in 2018, your business will be subject to a reduction in the amount of SBD that you can claim in 2019. Under the new rules, the small business limit will be reduced by $5 for every $1 of investment income above the $50,000 threshold. So under these new rules, the SBD will be eliminated when your Company’s investment income reaches $150,000 in a given tax year.

TAX TIP      Reassess your Company investment portfolio and if it makes sense to do so, consider a more tax-efficient mix of investments. For example, consider holding more equity investments within your Company rather than fixed income investments because only 50% of the gains realized on the sale of shares would be taxable. We can help you review your Company investments to help you achieve your objectives, so please contact us now.

 4. Delay Sale of Assets with Accrued Gains Until After Year-End

You should consider delaying sale of capital assets with accrued gains until 2020, or the start of your Company’s next fiscal year. This will enable your business to claim an additional year of CCA tax depreciation, amongst other beneficial reasons.

5. Get Life and Key Person Insurance

Consider corporate-owned life insurance including key person insurance for the business owner or shareholder. Permanent life insurance policies include a cash value feature and this cash value includes investments which grow on a tax-deferred basis. This means you won’t have to pay tax on the investment growth or interest earned until the money gets pulled out in future.

Most importantly, when the insured person dies, the key person policy pays a tax-free death benefit to the business as beneficiary. This means that part of the insurance pay-out will be tax-free and it will not be considered taxable income when the beneficiary files his or her tax return. Moreover, with policies other than key person insurance, you can potentially list your family or loved ones as beneficiaries so that they can receive some death benefit in future after you die.

If you would like to explore insurance strategies with one of our insurance specialist colleagues, please contact us now.

We Will Help You

HALPERN Chartered Professional Accounting Firm is a full-service Tax, Accounting, Business Advisory and Financial Planning CPA firm. Accurate and timely information is only one piece of any effective solution. We are dedicated to bringing you all of the pieces together – knowledgeable and innovative advice, leading-edge technology, and a strong relationship with our clients. This type of creative thinking enables us to help you and your business organization to solve complex problems and significantly enhance your ability to improve performance, manage risk and build value.

To arrange your personal and confidential FinancialCHECKUP™, call now 905-709-HELP or click here.