• Welcome to Bizforge
  • Recent News

Salary vs. dividends. Holding companies. Most business owners’ eyes glaze over when presented with accounting jargon. Yet tactics like these are essential to maximizing the value of your business. These tax tips prove that knowing your options can really pay off.

Deal yourself more dividends

Greg Toner of London, Ont., is an accountant with LiveCA LLP and says many entrepreneurs never think to take part of their pay in dividends, to take advantage of their lower tax rate. You do want employment income at some point, to qualify you for RRSP contributions and Canada Pension Plan. But depending on where you live, you can earn $30,000 to $40,000 in dividend income before you start paying tax. If you’re a young entrepreneur starting out, with minimal cash needs, Toner notes you might even take all your income as dividends. Then you can change your income mix every year to reflect your changing needs.

Income-split like a pro

Most entrepreneurs know how to cut taxes by splitting income with family members. The drawback is, they must be performing real work, and you must do the paperwork. (Ottawa accountant Ian Rathwell says he’s seen the Canada Revenue Agency cracking down lately, to the point of demanding employment contracts, not just T4 slips.) You can eliminate such hassles by making family members shareholders and paying them dividends instead.

With a discretionary family trust, you can choose to whom to pay how much, and when. So if you have children in college, or parents in need of support, the business can help them with their costs directly as needed. When it’s time to sell your business, having multiple shareholders will enable greater leverage of the $800,000 capital gains exemption Ottawa grants to qualifying business owners.

Get advice on structure

Start by thinking about family trusts or holding companies. If your business will own property, for instance, you can creditor-proof the operation by creating a separate company to own your real-estate assets. “If the operating company fails, your real estate company will be unaffected,” notes Rathwell.

Create a separate company for tax-deferred investing

Outside of registered retirement plans, you normally invest with after-tax dollars. But by moving funds out of your business to a related holding company, you trigger no tax payments. You can then invest the CRA’s cash as you would your own personal funds, Toner says. You’ll pay the tax eventually, but until then you have a bigger pool of capital to invest.

Walk the straight and narrow

Every accountant has horror stories about businesses that got careless about records for legitimate expenses such as website or cloud services, or claiming undocumented expenses. “A lot of people are getting sloppy,” says Rathwell. If that describes you, tax auditors can add fines to your unpaid taxes—and the penalties increase if such behaviour is repeated. “It all comes out to one thing: Keep your corporate and personal expenses separate,” Rathwell says. If you’re offside, watch out: “You may not get caught this year, you may not get caught next year, but if you get caught it will be painful.”


 

http://www.moneysense.ca/save/taxes/tax-tips-small-business-owners/

On – 11 Jan, 2017 By Rick Spence

Mobile Phone QR link:
  • Show Comments

Your email address will not be published. Required fields are marked *

comment *

  • name *

  • email *

  • website *

You May Also Like

How to Keep Your Business Small (on Purpose) But Make More Money | Inc.com

https://www.inc.com/christina-nicholson/how-to-keep-your-business-small-on-purpose-but-make-more-money.html On – 10 Apr, 2017 By Christina Nicholson Mobile Phone QR link:

4 Ways to Use Your Money for Social Impact – yes supply co.

4 Ways to Use Your Money for Social Impact by Andi Smiles Entrepreneurship 790 ...