The next tax year is right around the corner. If don’t have a system in place for filing your receipts and statements you should start gathering everything up now. A lot of receipts can be lost or misplaced during the holidays and if they are needed for tax purposes you are creating a more difficult and time consuming tax file for your accountant. Even if you choose not to do any bookkeeping or sorting, simply keeping all your receipts and statements in one place will save bookkeeping and accounting fees. Remember that all the support you keep works in your favor in the event of a CRA audit. The CRA will allow you to be more aggressive with your deductions if you have all the required support to back them up.
Also, don’t forget that if you are claiming GST/HST input tax credits (ITC’s), it’s vital to have your till receipts, not just a VISA/Debit slip, credit card statement or bank statement. A proper till receipt will show the product or service provided, the actual amount of GST/HST charged, and the business’ GST/HST registration number. If you are unsure if a business is properly registered to collect GST/HST, you can visit the CRA website at www.cra-arc.gc.ca and confirm their business number. It’s important you verify registrations with subcontractors and contractors as some may inadvertently be collecting and the CRA will disallow the ITC on an invalid GST/HST accounts.
If you are thinking of applying for a mortgage you can run into problems if you aren’t current with your tax return filings. If you are late and past the Efile deadline (this year Nov 30th), then your return must be paper filed. Paper filed returns have longer processing times and the delay in receiving an income tax Notice of Assessment could mean going past application deadlines.
If you plan on purchasing real estate or refinancing in the next year but have outstanding tax returns now is a good time to get caught up. Give us a call and book a free 1/2hr consultation and we’ll explain what tax saving opportunities you have. Regardless of how many years need to be filed we have the experience and qualifications to minimize late penalties and interest. You may even have refunds that are approaching expiration if not claimed so don’t delay.
Startup businesses can often overlook high end tax planning and advice. Not having enough time or initial cash flow leads a lot of owners to delay retaining a professional accountant. When government incentives are involved this can be an even costlier mistake than usual. Scientific Research and Experimental Development expenses can be a valuable source of cash flow that will expire if not applied for in a timely manner. If you or someone you know is in this position contact us for a free 1/2hr consultation.
Generally, a Canadian-controlled private corporation (CCPC) can earn an investment tax credit (ITC) of 35% up to the first $3 million of qualified expenditures for SR&ED carried out in Canada, and 20% on any excess amount. Other Canadian corporations, proprietorships, partnerships, and trusts can earn an ITC of 20% of qualified expenditures for SR&ED carried out in Canada.
Generally, a CCPC with a taxable income in the immediately preceding year that does not exceed the qualifying income limit may receive a portion of the ITC earned as a refund, after applying these tax credits against taxes payable.
To read more visit: www.cra-arc.gc.ca
July 31, 2012 by Solomon Nordine
Should you incorporate your business?
There are many factors to consider when deciding to carry on in a partnership/sole proprietorship or whether to incorporate.
From a marketing standpoint, incorporating might be a necessity. Some businesses are much more inclined to deal with an incorporated company. If that is not your case then you will want to consider the other implications.
The cost of incorporation and additional compliance costs of reporting for a company will offset some of the tax planning savings. Using the small business tax rate of 13.5% in BC is a good way to reduce your overall tax burden, especially if you plan on reinvesting the after-tax profits back into your business.
One potentially large cash flow bonus from using a company is the ability to bypass CPP premiums by issuing dividends instead of T4 management fees. Doing so can save approximately $5,000/year per shareholder that would have been issued a T4 at the maximum CPP coverage. One word of caution is to ensure you still make the minimum CPP contributions in order to keep your CPP disability coverage active. CPP disability has a minimum monthly payment and is an inexpensive form of disability insurance. If you don’t carry a separate policy or don’t qualify for another policy you will want to maintain the basic coverage at a minimum. Moreover, CPP premiums are for your retirement. They should not be considered a tax but rather a socialized RRSP program.
Another tax planning bonus is the ability to income smooth using a corporation. If you are in a line of work where your profits fluctuate wildly year-to-year, using a company to retain those profits and paying them out smoothly through dividends will help ensure you don’t exceed the highest marginal tax rate on your personal returns.
For a shareholder with a large family, you might also be able to optimize your personal income to maximize child tax, GST, and medical premium benefits. Taking out an interest bearing loan from your company and repaying it through dividends when the children turn 18 can provide huge benefits over the year. For this method to work interest rates need to stay relatively low and any future personal tax rate increases will negate some benefits.
Income splitting potential is another way to lower taxes between families members provided it is done correctly. Having various classes of shareholders enables dividends to be declared in accordance with each shareholder’s ability to absorb lower taxed income.
The capital gains exemption may be applicable when shareholders sell their business. When planned properly to avoid the alternative minimum tax, this exemption can protect large amounts of tax free gains. An individual may have a $750,000 gain tax free. Between husband and wife that can amount to $1,500,000.
Estate planning and the continuation of a business also benefits from utilizing a separate legal entity. In the event of the owner’s death, the business still carries one. Utilizing preferred voting shares is also a way to transition a company to ones heirs during their retirement phase. Should the company not be run effectively, the original owners can step back in and take over control of the business.
Past age 65 you will want to be cautious about your corporate savings. Old age security and the guaranteed income supplements are income based. If you are still withdrawing dividends from your corporation you may lose out on potential supplements and/or receive the old age security clawback.
A company is a separate legal entity and in some circumstances can provide shelter from potential liabilities*. If this aspect is of interest you should follow up with your business lawyer and insurance provider.
Solomon Nordine, BBA, MBA
Copyright © Complete Accounting Solutions
*NONE OF THE INFORMATION CONTAINED IN THIS ARTICLE IS FOR LEGAL ADVICE. YOU ARE ADVISED TO CONSULT A LAWYER WHENEVER CONTRACTUAL OR LEGAL ISSUES ARE CONSIDERED.
The Credit Crisis – What to expect and what to watch.
June 8, 2010
As the world comes to grips with its unsustainable credit expansion of the last decade, a harsh new reality awaits many that assumed that this past period was a normal economy. Rooted in the widely adapted theory of Keynesian economics (save in good times, spend in bad times) boosting the economy has been a priority. Unfortunately, this theory does not work well in today’s reality. The difficulty in determining when the economy should be held back is secondary to the main problem. Elected politicians rarely receive enough general public support to propose budget surpluses that pay down national debts and hold back hot economies. It’s far too tempting to cave to special interest groups using future taxpayer dollars, thereby bolstering (re)-election support. They do so because there’s little opposition to be found when the taxpayer is bled little by little. Only when catastrophic changes like austerity measures are required does the ordinary citizen seem to care.
As austerity becomes the new keyword, and governments struggle to lower their deficits, recessions will become inevitable. Even the US will be forced to question its overspending as being detrimental, likely in time for the 2012 elections. In the meantime, America’s calls for additional stimulus around the world are being laughed off as the sovereign debt crisis takes precedent. This crisis has now taken on enough momentum that it appears unstoppable. Rising bond rates are increasing interest costs, which in turn increase deficits and reduce credit worthiness – a vicious cycle. Just the thought of a renewed crisis has caused Eurozone retail sales to plummet in May, much like they did when the 2008 subprime crisis hit.
But this problem is not just limited to governments. Individuals, especially here in Canada, have indulged in credit to the extent we are now the worst country for individual debt in the G20, worse than Greece.
In the coming years it’s important for people to get control of their debt levels and prepare for higher government taxes and lower levels of disposable income. Unfortunately, this will have a compounding effect on GDP for countries mired in debt. A look at the US (approximately 5 years ahead of Canada) shows that when consumers cut back on spending, such as housing, there is a significant negative impact on GDP. Canada is poised to follow with unsustainable individual debt levels. In turn, our national deficits will be revised upwards as lower GDP and tax revenues become apparent. We are not nearly as insulated as we were led to believe.
As unsustainable markets begin to crumble, the decay will take hold in the market’s weakest areas. Countries the most at risk will suffer rising bond rates and not everyone will be so eager to avoid defaulting only to accept an IMF loan with strings attached. Bailout talks will continue being futile without monetizing debts and confidence in paper currencies will be shaken. Gold will flirt with reserve status and sovereign defaults will become inevitable despite “bailout” loans.
Be prepared for deflation as economies contract. Austerity, higher tax rates, rampant global bank failures, pre-boom housing prices, high levels of personal and corporate bankruptcies, amazingly low share valuations, and new gold highs. Then, with the continued monetization of debt, inflation will take hold. In the end we should all have learned a valuable lesson about misusing Keynesian economics.
After all, the solution to a debt problem is not more debt. It’s a balanced budget that takes into account the double whammy that cutbacks will have in times of recession. It’s not necessarily a popular position to take, but it’s the only viable solution. The sooner we accept that notion the less pain we’ll have to endure.
Solomon Nordine, MBA
Copyright © Complete Accounting Solutions
Investment Disclaimer: This webpage is provided for general information only and nothing contained in the material constitutes a recommendation for the purchase or sale of any security or any other transaction. Seek advice from a registered professional investment advisor before making any investment decisions.