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
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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