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Keep More of What You Can Earn Through Careful Planning A s an entrepreneur, operating your day-to-day business and planning for the future consume a lot of your time. Playing less tax, although important, may not always be top of mind. There’s no time like the present to ensure you are taking full advantage of all the tax minimization strategies available to you. As you review these key tips, consider how you may be able to apply one or more to you and your business. Tax Tips for the Business Owner Employ your spouse and children Whether you carry on your business personally or through a corporation, you should consider paying a salary to your spouse and/or children. Canada’s progressive tax system, which assesses higher income earners at higher tax rates, provides an incentive to split income with family members in a lower tax bracket. Paying a salary to a spouse and/or child who pays tax at a lower rate than you can create net tax savings. But, you must ensure that the salary is reasonable for the services they perform for the business. Incorporate your business Karen Benke CFP, EPC Senior Financial Consultant Investors Group 30 yourBusiness If your business produces more profit than you need to satisfy your personal cash flow needs, then incorporation could produce a sizeable tax deferral by accessing the lower small business tax rate for active income. This deferral benefit, however, is only available if the profits are left in the company. The longer the profits are left in the company, the larger the tax advantage. It is important to note that investment income earned on prior deferrals and rental income do not receive this lower rate. The tax deferral achieved through incorporation can create a permanent tax saving if the shares of the business are eventually sold and are eligible for $750,000 capital gains consumption. However, if you are incurring losses this will not be the best option. Other potential advantages of incorporation include having family members own shares to have access to multiple capital gains exemptions or paying our dividends Online | VOLUME 1 - ISSUE 2 to family members who are taxed at a lower rate. We can help determine which strategies work with your situation. Invest excess cash Since the biggest bang for your tax buck is accomplished by leaving profits in the incorporated company, the question becomes what to do with these profits. If repaying debt or reinvesting in the business operations are not options, then a smart investment plan is your best alternative. This strategy is most effective for active business income below the small business limit. Your