To prepare for Income Tax, there are basically three themes: Sources of Income. Sources of Deductions (money spent to earn income). Sources of Credits. Make three lists with those titles and you are ready to start! Some things change over time. The New Child Tax Benefit doesn’t pay out as much as the old system did, especially as family income increases. However, it is tax-free (one doesn’t add it to one’s income). Pension income splitting will likely be around for awhile. Family Income Splitting (income splitting when children are present) has been removed by the current government. It may be […]
13. Take steps to protect property if necessary. 14. Bank: Notify bank of death. Update statements then transfer to trust account. Invest excess cash after estimating immediate cash requirements 15.Receivables: Make lists of outstanding wages, vacation pay, death benefits from employment. Apply for any death or survivor benefits from elsewhere. File life insurance claim. Collect mortgage principal and/or interest. Make list of investment income (interest, dividends). 16.Investments: Collect records of stocks, bonds, etc and inventory. By reference to market value, determine if they should be sold. Change name to that of executor prior to disposition. If estate is ongoing, […]
Canada’s Bill C-29 has been passed. There will be big effects for those who use the Small Business Deduction. In my last blog, the Small Business Deduction was defined: basically 17% lower tax rate for the first $500,000 of active business income. In this blog I will discuss what companies can use the Small Business Deduction. In future blogs I will discuss the changes Bill C-29 will make and the outcome for Small Businesses. The main users of the Small Business Deduction are Canadian-Controlled Private Corporations (CCPCs). Obviously, the name implies the corporations must be ‘controlled’ by Canadians. Majority […]
The current Canadian government’s proposed C-29 will surprise a lot of small businesses. There will be big changes to what income is eligible for the Small Business Deduction. To be fair, some taxpayers were pushing the limits of the law. That being said, the government’s solution puts so much of a burden on small business that it threatens use of the Small Business Deduction. Over four blogs, I will explain what the Small Business Deduction is, who is eligible for the Deduction, describe the changes and why they are being made, and the outcome for small business. The Small Business […]
A Marginal Tax Rate (MTR) is the tax rate (%) paid on each additional dollar earned. It is called ‘Marginal’ as it refers to the next incremental dollar earned. The tax rates change with higher income. The more income, the likely the tax rate is higher. Federally, there are currently (2014 tax year) four tax brackets: Pay 15% on the first $43,953. Pay 22% on every extra dollar between $43,953 and $87,907, and so on for two higher brackets. Provincially, there are many more tax brackets. This means a smaller increase in income is more likely to lead to an increase in […]
RESPs are an excellent low-tax means of saving for a child’s education. Parents and grandparents may put money into an RESP. The money in an RESP grows tax-free. In addition, the government often puts funds into the RESP. Be careful from whom you purchase an RESP. This is an important business decision. What happens if your child decides not to pursue postsecondary education? Do you get the money back? What happens to the government’s contribution? These and other questions must be asked of the provider.
In Canada, there are two tax brackets for incorporated business income. The lower one, Small Business Deduction (SBD) rate is about 15%. The SBD is on the first $500,000 of income (up until a few years ago it was $400,000). Above $500,000 of income, the second ‘tax bracket’, the corporate rate is 26.5%. To illustrate: between $400K and $500K of income, $15,000 is tax payable. Between $500K and $600K of income, $26,500 is tax payable. This is a huge jump of 76.67%! However, due to the system of integration, the taxation activity flows down to the individual level when cash […]
There are a few resources from whom you can learn about tax. If you are a member of a specialized business group, they may have some key resources. There may be incubators (like www.investottawa.ca) that offer free seminars on topics such as HST. Newspapers, especially national ones, have specialists writing particularly about personal tax matters. Blogs and the CRA websites may also help. Books are great resources too. For a good introduction to taxes, I recommend Evelyn Jacks’ books. They provides knowledge in proper amounts so one doesn’t bite off more than they can chew. Still, the 6-cm thick […]