SMALL BUSINESS TAX TIPS BY ALLAN MADAN

By Allan Madan SMALL BUSINESS TAX TIPS

SMALL BUSINESS TAX RATE CORPORATE TAX RATE OF 15% 53.53% FOR INDIVIDUAL IN THE HIGHEST TAX BRACKET

1.Control Your employer exercises control over how/when you perform your work. PERSONAL SERVICE BUSINESS RULES

2. Tools & Equipment Your employer provides tools & equipment used to do your job PERSONAL SERVICE BUSINESS RULES

3. Subcontracting work Your employer does not allow you to hire subcontractors to help finish a project PERSONAL SERVICE BUSINESS RULES

4. Financial Risk You do not take any financial risk whatsoever PERSONAL SERVICE BUSINESS RULES

5. Opportunity for Profit You do not have the opportunity for profit, you are paid an hourly wage instead of per-project basis. PERSONAL SERVICE BUSINESS RULES

6. Financial Dependence You are financially dependent on your employer PERSONAL SERVICE BUSINESS RULES

1. Interest Income Earned on: cash savings accounts government bonds & bonds issued by large companies to investors. Interest income is fully taxable to you at your marginal rate. TAX ON INVESTMENT INCOME

2. Dividend Income 2 types of dividends for tax purposes Eligible dividends Taxed at a lower rate than ineligible dividends Ineligible dividends Paid by Canadian Private companies TAX ON INVESTMENT INCOME

Most Common Deductions on Investment income a) Interest earned on money borrowed to earn investment income b) Professional fees paid to a lawyer or accountant c) Financing costs incurred to arrange a loan, mortgage or line of credit. 3. Capital Gains Earned when: You sell publically traded shares / mutual funds/ real estate for a profit Tax: 50% of capital gain is taxable in Canada. Only half of a capital loss is tax deductible TAX ON INVESTMENT INCOME

Pay yourself a tax free vehicle allowance under 54 cents per kilometer for the first 5,000 K.M 48 cents thereafter The car allowance paid is also tax deductible to your corporation and avoids car tax. TAX-FREE CAR ALLOWANCE

Buy a Home with a Corporation in Canada EMPLOYEE HOME PURCHASE PLAN

Step 1 – Loan Your corporation makes a tax free loan to you There must be a written agreement and mortgage in place) EMPLOYEE HOME PURCHASE PLAN CONT.

Step 2 – Interest Pay reasonable amount of interest to your corporation - equal to market rate of interest EMPLOYEE HOME PURCHASE PLAN CONT.

Step 3 – Repayment Terms There must be a reasonable repayment period for the loan EMPLOYEE HOME PURCHASE PLAN CONT.

Step 4 – Employment You must be an employee of your corporation receiving regular payroll checks EMPLOYEE HOME PURCHASE PLAN CONT.

Mortgage interest on your residence Utilities Property taxes Repairs & Maintenance Home Insurance 100% of these cannot be written off but a reasonable portion can be. HOME OFFICE WRITE- OFFS

Able to claim the percentage of your home used for work Example: Vivian estimates that 300 square feet out of her 3,000 square foot house is allocated to office spaces This means Vivian can deduct 10% of her home office expenses Vivian incurred $5,000 of home office expenses during the year Claimable amount = $500 ($5,000 x 10%)

CORPORATE LIFE INSURANCE 1. Tax-Free Benefit Primary reason for life insurance 2.Tax-Free Growth Investments in stocks, bonds, and mutual funds 3. Cheaper Corporate Dollars Corporation should pay your premiums 4. Creditor Proofing Assets Protect your assets from creditors

GST/ HST – QUICK METHOD ELECTION Factors Which Determine Quick Method: 1.Service, retail, or manufacturing? 2.Province of permanent establishment 3.Province in which supplies are made or serviced are provided Input Tax Credits Can only be claimed if related to acquisition of capital assets

Who Can Use Quick Method? Small businesses with taxable sales of $400,000 or less Accountants, lawyers, and charities are prohibited Benefits Reduces paperwork Facilitates calculation of GST/HST remittances Improve bottom line for small businesses GST/ HST - QUICK METHOD ELECTION CONT.

EXAMPLE: Taxable Sales = $1,000 Taxable Expenses = $100 Remittance Rate = 8.8% Taxable Sales including HST = $1,000 x 1.13 = $1,130 HST to be remitted to CRA = $1,130 x 8.8% = $99.44 How to Elect Quick Method? Required to complete and send form GST74 (Election and Revocation of an Election to Use the Quick Method Accounting) to the CRA GST/ HST - QUICK METHOD ELECTION CONT.

Less Common Taxable Benefits ●Stock options for employees ○CCPC options ○Publicly traded companies EMPLOYEE BENEFITS & TAX DEDUCTIONS Common Taxable Benefits 1.Company Car Better to lease or buy? 2.Free Home Internet/ Company Cell Phone How much tax relief?

Relocation Abroad Canadian residents vs. Canadian non-residents Canadian Residents Transportation allowances Living allowances Canadian Non-Residents Fully entitled benefits EMPLOYEE BENEFITS & TAX DEDUCTIONS CONT’D

Top 1% (Over $200,000) 2015: 29% 2016: 33% Middle Class ($45,000- $90,000) 2015: 22% 2016: 20.5% 2016 TRUDEAU BUDGET HIGHLIGHTS

How Are Small Businesses Affected? 1.Criteria for the lower business tax rate 2.Incorporation Costs 2016 TRUDEAU BUDGET HIGHLIGHTS CONT’D