Our annual Tax Tips Guide is here to assist you in your tax planning, presenting some quick ideas and strategies for you to employ.
If you have your own corporation
Consider your optimum salary/ dividend mix to achieve less overall tax:Salary will qualify you and other family members active in the business for RRSP contributions, Canada Pension Plan (CPP) contributions, and child-care deductions. Dividends will not qualify an individual for these contributions or deductions.
In the past, the payment of dividends to shareholders over 17 years of age was an easy way to achieve income splitting, costing the family unit less in current taxes. With the introduction of TOSI (Tax on Split Income), income splitting has become significantly more difficult. The TOSI eliminates the tax benefits of paying dividends to family members (with little or no other sources of income), who are not active in the business or who do not own “excluded shares” of the company. If TOSI applies to the dividends, the recipient individual will pay tax on these dividends at the highest marginal tax rate. Speak to your Crowe Soberman advisor to determine whether you may still benefit from income splitting given your specific circumstances.
Consider accessing funds from the corporation that can be withdrawn tax-free. For example, repay shareholder loans, return capital to shareholders up to the lesser of the paid-up capital and the adjusted cost base of the shares, or roll in personal assets with a high cost base to the corporation on a tax-free basis to extract the cost base of the assets on a tax-free basis.
Defer income that is not required personally for longer period:If you do not require cash from your corporation to spend personally, consider keeping the funds invested in your corporation and defer the tax payable on the ultimate withdrawal of the funds.
Consider instalments for 2020:
The threshold above which corporations must pay income tax, GST and source deductions instalments is $3,000. The threshold will be based on 2019 tax amounts payable.
Certain Canadian-controlled private corporations are allowed to make quarterly, instead of monthly, income tax instalments. To qualify, certain conditions must be met, including the following criteria relating to the 2019 taxation year:
- The corporation has been in perfect compliance in the previous 12 months;
- The corporation was entitled to the small business deduction;
- The taxable income of the associated group did not exceed $500,000; and
- The taxable capital of the associated group did not exceed $10 million.
Instalment planning for 2020 can be addressed during 2019 by meeting the conditions where applicable.