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Do you own an incorporated small business?

The federal government is proposing some significant changes to the tax rules around these entities. Coming into effect in 2018, these changes will mean significant changes for the way small businesses file their taxes. Be sure you and your corporation are ready to adapt your tax practices accordingly.

Here are a few of the proposed changes that you should know about:

Increase in Dividend Tax and Income Sprinkling

The government will increase the tax on dividends paid to family members who are shareholders of a small business corporation. Under the new rules, recipients of dividends from the corporation will be taxed at the highest marginal rate. This change will make it more difficult to distribute wealth within a family from a small business corporation.

Passive Investment Income

Under the old tax regime, holding money in a fund under the title of the corporation was a good way to shelter income. Presently, corporate income is eligible about 15 per cent tax rate (varying by province). Under the new tax rules, income to a corporation will be taxed at a higher rate, as will income as dividends. This means you’ll wind up paying more tax over all if you invest inside the corporation and then eventually pay that income out to yourself as dividends later on.

Tax on Investment Income or Capital Gains

Some corporations have realized that paying themselves in capital gains instead of salary can be a money saver with the tax man. Amendments are proposed in the new tax rules to change the practice of “anti-surplus stripping” and will effectively render this practice obsolete.

As you can see, there are some significant changes coming in the way that incorporated small businesses are taxed. Get informed on the best strategies and options available to you under these new rules and reduce your taxes by contacting Ati Bookkeeping and Taxes

After almost 14 years of tax experience, I’ve recently discovered that most people unfortunately don’t know their basic rights when it comes to claiming their tax deductions or credits. Individual taxes are becoming more complex and you should seek advice from tax experts. Contact me for a consultation.

Below the major upcoming some changes effective for the 2014 tax return!

  • When you register for online mail, the CRA will no longer mail notices to you. Instead, you will receive an email notification that there is mail for you to view on the MY Account on line service

  • You or your spouse/common law partner may be able to claim a non refundable tax credit of up to $2,000, if your child ordinarily lived with you (some conditions applied)

  • Lifetime capital gains exemption for dispositions of qualified small business corporation has increased to $800,000 for the lifetime

  • Adoption expenses eligible for each child has increased to $15,000

  • Children’s fitness amount has increased to $1,000

  • GST/HST credit no longer to apply. When you file your tax return, the CRA will determine your eligibility

  • The rules for the $1,000 exemption for emergency services volunteers have changed

If you are an owner of a small business and you already set up a corporation, you may consider “Shareholder Loan” before paying yourself a salary or dividends.
Shareholder Loan means, when the owners of the business pay for the expenses on the behalf of their corporation therefore the company owes them. The expenses could be at the “Start-up expenses” or “Operating expenses”.
Shareholder Loan can be completely tax free, however, salary and dividends are both taxable.


Salary & Dividend Mix:

Following my previous blogs, the last option about how I should  pay myself at the end of this year would be if the owners of corporation are using a mix of dividends and salary in order to minimize their taxes. They still have to pay some taxes and CPP however,  you have already prepared yourself to pay some taxes and won’t be surprised towards the end of the year.

For instance, Mykel is an entrepreneur who owns ABC Co. He is living  in North Vancouver, BC. He wants to pay himself a mix salary and dividend for 2014 tax season. He would like to keep his taxable income at a lower tax bracket and minimize his taxes as well as, he wants to increase his earned income in order  to increase RSP room for the purpose of RRSP contribution.

After consulting with a tax specialist he decides to pay $35,551.00 dividend and $10,000.00 salary to himself at the end of 2014  .  The total of his taxable income would be something around $55,000.oo after gross up his dividends. He can decrease his taxes by contributing to his RSP at the end of 2014 (during year) or for the 60 days in the following year in 2015.

He will still be in the second bracket of the Federal and Provincial taxes (29.70 % both taxes) which still is less than 3k taxes for 2015 tax return.

If Mykel contributes $5000.00 RSP (monthly/lump sum) to his RSP plan, then he can save in significant tax charges for 2015 tax return.

There are more options to minimize your taxes. Please contact me if you need more information.