Financial Tips For Business Owners

Financial Tips For Business Owners – It’s a good time to review your business finances now that we’re nearing the end of the year. Your business may be affected by recent tax changes or new relief measures due to the loss of income due to COVID-19. Determining the tax implications of these new measures can be difficult, so please do not hesitate to consult your accountant and us to see how this may affect your business finances.

We are assuming that the end of your working year is December 31. If not, then this information will be useful when your last business comes up.

Financial Tips For Business Owners

Financial Tips For Business Owners

Below, we’ve listed some of the key areas to consider and provide you with helpful guidance to ensure you cover all the essentials. We’ve divided our tax planning tips into four categories:

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Individuals with incorporated businesses can choose to receive their income as a salary or as dividends. Your choice will depend on your circumstances. Consider the following factors:

It’s worth considering whether you receive a salary high enough to take full advantage of the maximum RRSP annual contribution you can make. In 2020, earnings of $157,611 will provide the maximum RRSP room of $27,830 in 2021.

You may consider increasing your salary or bonus in the current year but delaying payment until the following year. If your company’s year-end is 31 December, your corporation will benefit from the 2020 exemption. The deduction must not be deducted until the actual salary or bonus payment in 2021.

If your compensation includes stock options, check if you will be affected by the stock option rules that came into effect on January 1, 2020. These new rules cap the amount of employee stock options that qualify for the stock option deduction at $200,000 as of January 1, 2020. These rules will not affect you or a Canadian privately held company it gives you stock options.

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If you are the owner of your own company, pay yourself a fee if you can. Here are some ways to do so:

Employing and paying wages to family members who work for your joint venture is worth considering. You can have a tax deduction on the salary you pay them, provided the salary is “reasonable” for the work done. In 2020, the individual can earn up to $13,229 (increased in 2020 from $12) and not pay federal taxes. This also gives the person a home to contribute to RRSP, CPP and allows child support deductions. Keep in mind that there are other costs incurred when you work for someone, such as payroll tax and contributions to CPP.

You can apply for both programs if you qualify. If you are eligible for the TWS but have not reduced your payment amount, you can apply. The CRA will pay the subsidy amount to you or transfer it to your next year’s remittance.

Financial Tips For Business Owners

Can you take the small business deduction? The federal small business tax has decreased to 9% in 2019. It has not increased in 2020, and is not expected to increase in 2021. From a provincial level, there will be changes in the following provinces:

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Borrowing money from your organization at a low or zero rate means you are considered to have received a tax credit at the CRA’s 1% interest rate, the minimum actual interest you pay within a year or 30 days after the end of the year. . You must include the credit in your tax returns unless it is paid within one year after the end of your company’s tax year.

For example, if your company has a December 31 year-end and owed you money on November 1, 2020, you must repay the loan by December 31, 2021; otherwise, you will need to include the loan as taxable income on your 2020 personal tax return.

If your company has a December year-end, then 2020 will be the second tax year in which the current investment rules can apply to your company.

New measures introduced in the 2018 federal budget relate to private businesses, which receive capital to invest in a company that also operates a business.

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Let’s say your corporation gets an active business and investment. In that case, you should contact your accountant and us directly to see if there are any planning opportunities to reduce the new investment risk. For example, you can consider a “buy and hold” strategy to help calculate income.

With the exception of two provinces, Quebec and Alberta, the combined top income tax rates will not change from 2020 to 2021 at the provincial level. Therefore, it will not make a difference in most places if you choose to pay in 2020 or 2021.

In Quebec and Alberta, since there will be an increase in the combined tax rate, you will have the opportunity to save the current tax if you choose to pay dividends in 2020 instead of 2021.

Financial Tips For Business Owners

When deciding to pay dividends, you will need to decide whether to pay qualified or non-qualified dividends. Consider the following:

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Considering the investment income rules, in general, it makes sense to pay the appropriate interest to complete the ERDTOH balance before paying the limitations. (Please note that random rewards can also generate income from the ERDTOH account.)

Qualifying dividends are set at a lower tax rate than non-qualifying dividends (subject to the highest combined marginal tax rate). However, keep in mind that when non-allowable dividends are paid, they are subject to the small business deduction; therefore, the share of gross-up is 15% while the relevant profits are below the general corporate tax, the share of gross-up is 38%. It is important to talk to an expert to find out what makes the most sense when choosing the type of outsourcing payment for your company.

It may be time to reconsider your company structure, given the recent changes to the rules for private companies on the distribution of income and capital investments that will provide more control over the distribution of income.

Before giving shares to other shareholders in your private company (this includes your spouse, children, or other relatives), review the TOSI rules with us or your tax and legal advisors.

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Another reason to reassess your profile is to separate investment assets from your operating company’s asset management. You don’t want to trigger a TOSI, so make sure you configure this correctly. If you are considering succession planning, now is the time to review your company structure.

Another aspect of corporate reorganization can be loss consolidation – where you combine losses from within groups of related companies.

If your estate plan includes an intention for your family members to inherit your business using a trust, make sure the plan is still tax-efficient; Income tax changes effective January 1, 2016 removed the tax on the costs of graduate testamentary trusts and now tax these trusts at a higher rate of income tax. Review your will to ensure that any private company shares you wish to divest will not be affected by the latest TOSI rules.

Financial Tips For Business Owners

Consider a succession plan so that your business can be passed on to your children, key employees or an outside party in a tax-efficient manner.

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If you sell your qualified small business corporation shares, you can qualify for a lifetime income exemption (In 2020, the exemption is $883, 384), where the interest is not tax deductible. The military is a cumulative military life; therefore, you don’t have to take the entire amount at once.

The issues we have discussed above can be difficult. Contact your accountant and us if you have any questions. We can help.

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Highlights of the 2020 Federal Fall Economic Statement | Additional $20,000… Canadian Government to approve up to $400,000 for home office expenses Small business owners in Canada are required to file an annual tax return with Canada Revenue each year regardless of whether they are profitable or not. Here are some tips on how to avoid making costly mistakes and falling under the CRA radar.

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The above text is for reference only. Every taxpayer’s situation is different and offers different tax savings opportunities and strategies. Feel free to contact us for a no-obligation and no-fee initial 30 minute consultation.

Rose returned to school as a senior in 1992 and pursued her dream of becoming an accountant. Rose began her accounting education at Grant MacEwan Community College. While studying part-time while working and raising a family, he completed his program and graduated in 1996. He went on to earn his Certified General Accountant Designation (CGA) in 2002.

Rose has years of experience in public accounting. She worked as a senior manager at a public accounting firm before opening her own firm in 2013. Rose previously served as an accounting and auditing consultant on various non-profit boards and worked in industry before joining.

Financial Tips For Business Owners

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