Tax planning for businesses, individuals, and families is an ongoing process that aims to reduce the overall taxes owed by the company and, ultimately, the owners and their families. As an effective tax reduction strategy, a professional accountant and Canadian tax and business lawyers team are essential when establishing and running a business. Tax law is constantly evolving, and Sidhu accounting will keep you up to date on income tax rules and regulations that affect your small business and corporation. In addition, we offer professional Canadian income tax advice and assistance with:
- Creating Business Start-Up Structures
- Shareholders’ agreements and incorporations
- Identifying tax planning opportunities for your company and corporation to reduce income taxes
- Small and medium-sized business tax advice for the owner-manager
- Partnership taxation and minimization
- Joint venture taxation
- Unfiled taxes include both corporate and personal back taxes.
- Providing tax advice on proposed transactions, including franchise tax planning
- Tax planning for real estate, including joint ventures
TAX PLANNING–INCOME SPLITTING
The income tax bracket of a Canadian taxpayer, and thus the income tax liability, is determined by the absolute amount of the taxpayer’s income. Therefore, the higher the income, the higher the income tax bracket and the percentage of income tax paid. Several income-splitting approaches can get used. Income splitting is a tax strategy in which one taxpayer transfers a portion of their income to another taxpayer taxed at a lower rate.
Maximize CCA ( Tax Depreciation ) – Purchase capital assets just before the end of the business year –
Suppose you buy business capital assets right before the end of the fiscal year. In that case, you can claim a capital cost allowance (income tax depreciation) of 50% of the capital cost allowance rate for that year. However, if you purchase the asset shortly after the end of the fiscal year, you can claim the same rate, but only in the following year, delaying your income tax deduction by one year.
Sell Business Capital Assets After The End of the Business Year
Selling capital assets (business property) after the end of the fiscal year allows you to defer income taxes on the depreciation and capital gain that recapture until the following year.
Think about the income tax effects of dividends VS. Salary Bonus
To minimize overall taxes for the individual shareholder–owner and the corporation, business owners should consider a combination of salary or bonus and dividends. It should be accomplished at least once a year and necessitates the corporation’s accountant’s income tax planning and calculations.
Think About Creating a Private Personal Plan
Employees are not taxed on the employer’s pension contributions to the RPP. Contributions to registered pension plans for employees, including plans for shareholders, are tax-deductible for the company as business expenses. Private pension plans, which can get set up instead of a Registered Retirement Savings Plan for owners and managers, are an effective tax planning tool.
Repay shareholder loans within two corporate year ends
Shareholders and owners can always take money out of the company through shareholder loans or draws, but there are tax implications and rules to follow. For example, suppose the shareholder loan amount is repaid within two business years (i.e., by the end of the following business year). In that case, the loan amount gets not considered a taxable benefit to the shareholder/owner (borrower).
If it is outstanding for two corporate fiscal years, subsection 15(2) of the Income Tax Act includes the entire shareholder’s income. As a result, if the shareholder did not pay interest on the loan or paid interest more than 30 days after the end of the taxation year, the shareholder should have acquired a taxable benefit for the unpaid interest.
Answers to common questions
- If I have a CPA, do I still need a tax lawyer for corporate tax planning?
CPAs and tax lawyers provide services to assist you in your time of need. Your accountant can manage your day-to-day operations. However, if your CPA cannot handle the situation, a tax lawyer may be required to step in. Tax lawyers are experts at navigating complex legal and technical issues. As a result, it’s always a good idea to keep one on retainer. That way, you can consult with them to avoid problems before they complicate your tax situation.
- What are the three fundamental tax planning strategies?
There are several approaches to tax planning, but the three main ones are to reduce your overall income, increase your number of tax deductions throughout the year, and take advantage of certain tax credits.
- When are corporate taxes due in Canada?
A corporation’s fiscal period is its tax year. Returns should be filed till six months of the end of each fiscal year. If the corporation’s fiscal year ends on the last day of a month, the return should be filed till the end day of the sixth month after the fiscal year ends.
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