Tax planning for business owners

YEAR END PLANNING FOR BUSINESS OWNERS!!

If you are planning to acquire new capital assets, do it before year-end and take advantage of Capital Cost.

Depreciation: If you are planning to acquire new capital assets, consider making your purchase before your year-end to take advantage of capital cost allowance this year

Health Care Expenses: If you are a sole-proprietor and pay the premiums on a private health insurance plan, these premiums as well as any co-pay amounts qualify for the medical expense tax credit.

Salary to Family Members: If you have members of your immediate family working in your business, you may pay them a reasonable salary or wage. The income paid will be deductible to the business owner (or corporation) making the payment and taxable in the family members hands.

The filing deadline for T5’s & T4’s is February 28, 2013. It is important to consider the right salary and dividend mix. You should evaluate the combined tax rate, impact of the employer’s health tax, and your RRSP contribution limits. Also be mindful that if you pay yourself dividends you may attract the alternative minimum tax.

Eligible Dividends: If you have a corporation, you may be able to pay eligible dividends on taxable income earned over the $500,000 limit or income received as via dividends from investments in Canadian public companies. The personal rate of tax on eligible dividends is lower than dividends paid from income subject to the small business deduction.

Interest Rather Than Salary: If you are a shareholder and have lent your company money, consider having the company pay you interest on the loan rather than take a salary. The interest will normally be deductible by the company and will not attract the EHT.

Retirement Compensation Arrangements: In some circumstances a retirement compensation arrangement (RCA) can be used as an alternative to paying a bonus to an owner/manager or company executives.

The RCA provides future retirement benefits and can result in tax savings where retirement income is expected to be in a lower tax margin. The plan is also flexible in that annual contributions are not required and the investments and future income are not subject to the restrictions placed on registered retirement plans or pension plans.

File taxes with SHOPPFINANCE.COM

Courtesy Dean Paley