Posts Tagged ‘Taxes’

Mid-Year Business Tax Planning Checklist

July 30th, 2010

An effective tax strategy for your business is one that is kept up to date year-round. Here’s a mid-year checklist to help you stay on top of your business tax planning.

  1. Implement the HST – “The new Harmonized Sales Tax (HST) came into effect July 1, 2010, so you should have already implemented a system to collect and remit the HST on sales and to track the HST you pay on purchases for the purposes of claiming input tax credits,” says Chartered Accountant Monika Malachowska of Etobicoke. “If your business has not made this transition, contact a qualified tax professional for help.”
  2. Evaluate your tax instalments – “Check your projected income and instalments to determine if an adjustment is required for the remainder of 2010,” advises Malachowska. “If you expect your annual income to fall, you may be able to reduce your remaining instalments to improve your cash flows. However, keep in mind that if you pay less than the instalment amount the Canada Revenue Agency (CRA) requires, and your final tax obligation is higher than your estimate, interest and penalties may be charged.”
  3. Consider alternatives – “Consider taking a salary instead of a dividend,” advises Chartered Accountant Ken Bell, principal, Kenneth Bell CA Business Advisory Group in Brampton. “If you use a vehicle for business and you are incorporated, consider receiving a mileage allowance, because it may cover more than the actual amount it costs to operate your vehicle.” Bell also suggests setting up a rental agreement with your corporation for a portion of your house. “It’s treating a portion of your house as a second location for your office and is better from a tax perspective than the home office deduction of an employee.
  4. If you need new computers, buy them soon – “The current 100-per-cent deduction for new computer equipment expires on February 1, 2011,” Bell explains. “So if you need new equipment, plan now and purchase before the deduction expires.”
  5. Don’t fall behind on documenting your expenses – “Appropriate documentation of your travel, meals and entertainment expenses should always be part of your overall tax planning strategy,” says Malachowska. “These are among the expenses that the CRA scrutinizes most closely.”
  6. Hire your child for the summer – “This is a good idea because it will give you a tax deduction and is good experience for your child,” says Bell. “Just be sure the amount of salary is what you would pay to a non-relative, and be sure to pay by cheque so you have a record of what you paid.”
  7. Consider a bonus before year-end – “If you are incorporated, accruing a bonus before year-end can provide a deferral of tax, as the corporation can deduct the bonus expense when it is accrued, but the employee is not taxed until the bonus is paid,” advises Malachowska. “The bonus must be paid by the corporation within 179 days of the year-end.” It’s not always advisable to accrue a bonus, adds Malachowska, so check with your tax advisor first.
  8. Make an in-kind donation to a charity – “You will receive a tax deduction for in-kind donations of things like used vehicles or furniture to a registered charity,” says Bell. “An appraisal of the value of the donated items is required, but some charities will arrange that for you.”
  9. Assess your RRSP strategy – “Make your Registered Retirement Savings Plan (RRSP) contributions as early in the year as possible,” advises Bell. “If you have an investment outside your RRSP and have a capital gain, you must declare it and can then transfer the investment directly into your RRSP. However, if you have a loss and transfer the investment directly into your RRSP the loss will be denied by the CRA. In that case, it is better to sell off the investment and transfer the proceeds to your RRSP.
  10. Talk to a Chartered Accountant – “A CA can help you develop an overall business tax strategy to achieve both tax minimization and tax deferral,” advises Malachowska. “Once the initial planning is done, a mid-year or even more frequent follow-up may be necessary to evaluate the effectiveness of the plan and make any required adjustments.

Brought to you by the Institute of Chartered Accountants of Ontario

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Year-end Tax Planning Tips

December 22nd, 2009

CalculatorWhen you think “December,” you likely think Holidays, shopping, parties and snow storms; TAX PLANNING is not top of mind.

And while ideally tax planning should be considered on an ongoing basis as part of an overall financial plan, December often provides a last-chance opportunity to save money on your personal taxes for the given year.

Before the year is over, we encourage you to turn your attention to your personal finances. Here’s a list of some of the more common year-end tax planning tips (in no particular order):

1. HOMEOWNERS AND PROSPECTIVE HOMEOWNERS

Home Buyers’ Plan – A first-time home buyer can withdraw from his/her RRSP under the federal Home Buyers’ Plan (HBP) up to $25K to purchase or construct a new home without having to pay tax on that withdrawal. If you are planning to buy a new home in early 2010, consider delaying your HBP withdrawal until 2010 (subject to certain conditions) to allow you one additional year before repayments must begin. For example, repayments of moneys withdrawn in December would need to be repaid beginning in 2011. By waiting until January, you can delay your first repayment to 2012.

First-Time Home Buyers’ Tax Credit – There is a new non-refundable tax credit based on a $5K amount for “first-time home buyers” who acquire a home after January 27, 2009. Any unused First-Time Home Buyers’ Tax Credit can be claimed by the individual’s spouse/partner. Note, however, that even if each spouse/partner uses his/her own funds to jointly purchase a new home, the First-Time Home Buyers’ Tax Credit is still limited to one credit on $5K (as opposed to $5K for each spouse/partner).

Home Renovation Tax Credit (HRTC) – The HRTC is a 15% non-refundable tax credit for eligible renovation expenditures made on your house, condo or cottage. The credit applies to any amounts spent over $1K up to a maximum of $10K (between January 27, 2009 and February 1, 2010), producing a maximum credit of $1,350.The CRA has released numerous technical interpretations on which types of renovation expenses qualify for the HRTC. Click here for details.

2. CONTRIBUTE TO A REGISTERED EDUCATION SAVINGS PLAN (RESP)

Contributing to an RESP is a great way to save for a child’s post-secondary education. Recent enhancements resulted in both more time and additional room to contribute. RESPsalso offer investors the opportunity to supplement their savings with a number of government grants. For more information on this program, click here.

3. PAY INVESTMENT EXPENSES

In order to deduct investment-related expenses on your 2009 tax return, the amounts must be actually PAID by year-end. Such expenses include interest paid on money borrowed for investing, investment counseling fees for non-RRSP accounts, safety deposit box rental fees, and professional accounting services for tracking rental or business income.

4. PURCHASE BUSINESS ASSETS

If you own a business, consider accelerating the purchase of new business equipment or office furniture that you may have been planning to purchase in 2010. You’re permitted to deduct one half of a full year’s tax depreciation (aka “capital cost allowance”) in 2009, even if you bought it on the last day of the year. A time-limited special 100% write-off is available for new computer equipment.

5. DONATE TO A REGISTERED CHARITY

Dec. 31 is the last day to make a donation and receive a tax credit for 2009. By gifting publicly traded securities with accrued capital gains to a registered charity or foundation, donors receive a tax receipt for the fair market value of the security being donated and capital gains taxes are eliminated.

6. REDUCE YOUR 2010 SOURCE DEDUCTIONS

If you routinely get a large tax refund each spring due to, for example, RRSP contributions or childcare deductions, consider applying to the CRA to reduce the amount of income tax withheld on your employment income. This way you can pay less income tax over the year rather than overpaying and then applying for a refund in April. The advantage? You get to keep your own money instead of loaning it, interest-free, to the CRA.

For the 2010 tax year, now is the time to complete and send Form T1213 “Request to Reduce Tax Deductions At Source for Year(s) _____”, with all supporting documents, to the Client Services Division of your local tax services office.

7. TAX-LOSS SELLING

This is the practice of selling investments in an accrued loss position to offset capital gains realized this year or in the previous three years. To realize losses on public securities, trades must typically be made on or before December 24th or the trade may not settle until 2010 and the loss won’t be available until next year.

If interested in this type of planning, we highly recommend speaking with a tax advisor as there are certain transactions that will not fly with the taxman.

8. PRESCRIBED RATE LOAN AT 1%

Given that the CRA’s prescribed interest rate is set at an all-time low of 1% until at least December 31st, now is a great time for couples to consider the potential benefits of income-splitting: the practice of shifting income from the higher income spouse to the lower income spouse to reduce taxes. Any investment returns above 1% can then be taxed in the hands of the lower-income spouse.

As with all tax planning strategies, you should seek the advice of a qualified financial advisor or tax advisor to discuss planning opportunities.

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