Corporate tax preparation and planning is an integral part of one’s financial toolkit considered by Canadian businesses. At Shajani LLP, we make it a cornerstone of our practice to ensure our clients plan effectively and pay the least amount of tax feasible. Some of the items we’ll consider include the following:
- Evaluate your personal compensation options as it relates to dividends, salary, bonuses, or shareholder loan repayments. All of these forms of compensation have different tax consequences; we can assist you in determining the best course of action for your situation.
- Consider an estate freeze. An estate freeze is undertaken when the shareholders of a business wish to have future growth of their business be taxed in the hands of their heirs. This can result in a significant potential deferral of tax when properly planned and executed.
- If you’re a shareholder of a professional corporation, consider adding your spouse and/or children as non-voting shareholders. Recent legislation in many provinces has permitted the inclusion of specific family members as shareholders in the Professional Corporation of Professionals. This can provide significant tax-planning opportunities. Ensure you speak to your tax advisor about not running afoul of the “kiddie tax rules.”
- Consider paying your children from your corporation in the form of salary or dividends. Any salary paid must be reasonable and based on work done by the child, but can provide excellent income- splitting opportunities, as well as allow the child to earn RRSP room. Dividends declared and paid to a minor child may be subject to the kiddie tax provisions, but any investment income earned thereafter may be taxed in the hands of the child, potentially sheltering much of this future income from immediate tax.
- Consider having your corporation loan you money to purchase a home. The Canadian Income Tax Act allows for this to occur without triggering what would otherwise be a potentially large tax payment. Be advised, however, that the loan must be made to someone in their capacity as an employee of the corporation (not shareholder), with bona fide repayment terms at the prescribed rate of interest. We can assist you in executing this strategy.
- Consider dividend sprinkling. By structuring shareholdings appropriately, your business can potentially maximize income-splitting opportunities by declaring the appropriate dividends at the appropriate time. In order to maximize flexibility, it’s important to take advantage of the corporation’s ability to issue different classes of shares and time its dividend declaration.
- Take advantage of the automobile allowance rules. Your corporation is permited to pay you an automobile allowance, for business purposes, for the kilometres in which you drive your personal vehicle. This allowance you receive is not taxable to you and is tax-deductible to your corporation. Keep a log of the kilometres you drive for business purposes, and keep in mind you cannot claim this allowance for mileage incurred from your home to your place of work. New rules, as of X, are in the process of being implemented, and are making it easier to claim this allowance by allowing the taxpayer to keep a sample log and extrapolate it over the course of the year. Talk to your tax advisor about this opportunity.
Our focus in personal tax includes a strategy of increasing your net worth while taking advantage of tax credits available to you. While advising on moving investments to registered plans such as the RRSP, TFSA and RESP if this is reasonable in your individual or family circumstance, we will also consider the following to get you to pay the least amount of tax and maximize any refunds available:
- Review your stock portfolio to see if you can take advantage of your capital gain or loss situation. There may be a tax planning opportunity in taking a loss or a gain depending on your situation. Capital losses can be carried back three years or carried forward indefinitely to offset capital gains incurred during this period.
- Structure your financial affairs to make your interest tax deductible. You may deduct interest incurred to obtain income from a business, or investment. Careful structuring is important here, thus consulting your tax advisor is recommended.
- Pool medical expenses. Medical expenses can be claimed in any 12-month period ending in 2010, so it could be beneficial to try to fit known medical expenses into the same 12-month period to maximize your claim
- Take advantage of the government’s Canada Education Savings Grant by making a contribution to your child’s Registered Education Savings Plan (RESP) before Dec. 31.
- Lump your donations together before Dec. 31. If you make more than $200 in donations in a tax year, the amount over $200 will also be worth the top 29-per-cent federal credit instead of the minimum 15 per cent for donations under $200.
- Plan your moving day. As you’re provincially taxable in the province you reside on Dec. 31, you may wish to plan your move based around the difference in tax rates. You also may wish to confirm if you’re eligible to deduct your moving expenses on your personal return.
- The higher-income spouse should consider loaning to the lower-income spouse. The current prescribed rate is very low, thus loaning money to the lowe-income spouse, who subsequently invests the funds at a higher rate than the prescribed rate, can potentially result in a significant tax savings than if the higher-income spouse invests the funds in his or her name.
- Consider incorporating if you have a business. In Alberta, corporations pay a low rate of tax of only 14% on the first $500,000 of taxable income – generally much lower than individuals.