March 20, 2014

Income-Splitting for Pensioners

Income splitting for pensioners is an excellent means of lowering total family tax. It works when there are two people of different income levels. Pension income that may be split comprises employment pension and RRIF, but not OAS or CPP.  A key benefit is that the higher-income spouse whose pension income is split now pays tax at a lower marginal tax rate. Another benefit is that the overall family tax payable is reduced. There are some challenges. The lower-income spouse technically has to pay more tax in the individual sense, so a family plan to pay any outstanding taxes should […]
November 7, 2013

Moving Assets to Corporations

Transferring assets from a person to a corporation is complex but very important. If the transfer is done correctly, the value of the assets may be extracted tax-free (‘boot’). Or, the value of the assets become ‘Paid Up Capital’ (PUC) attached to shares which may be extracted tax-free from the corporation at a later date. As tax is your relationship with the government, the government is saying ‘you paid tax on your earnings, then invested it.  If you invest your earnings, then take the same amount out of your investment, we won’t tax you on it.’ Fair enough. However, there […]
October 15, 2013

Two Corporate Tax Brackets

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 […]
October 2, 2013

Where to learn about tax

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 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 […]
August 9, 2013

Time to Review Installments

By now, one should have the financial statements for the first two quarters of the year. Time to compare and contrast that with the installments registered with the CRA. If your business is doing better than expected, it may be time to increase your installments to avoid penalties and interest. If you business is easing down a bit (compared to your budgeted estimates), altering your installment registration with the CRA can reduce your taxes payable.
July 3, 2013

Charging HST by Province

HST is to be charged by province. If a business is resident in Ontario, and sells to another province, the level of HST that is charged depends on the transaction. If a business in Ontario sells to a business in Alberta, and the Ontario business pays for shipping, the Alberta business is deemed to receive the goods in Alberta. Alberta HST (at 5%) applies. If, however, the Alberta company has a shipping contract and takes responsibility for picking up the goods in Ontario and shipping them, Ontario HST must be charged. In conclusion, HST charged largely depends upon where the […]
June 21, 2013

Complicated Income Tax Act

The Income Tax Act(ITA), as mentioned in previous posts, requires adding back amortization to calculate Net Income for tax purposes. After that, the capital assets are put into a special pool, and a unique form of amortization deductions called Capital Cost Allowance (CCA) is used to calculate amortization for tax purposes. Then it gets complicated. If one has a land and building, and one sells the two, it may lead to little capital gains on one and a great deal of (taxable!) capital gains on the other. Section 44(6) and 13(4) of the ITA help to spread proceeds from one […]
June 12, 2013

Business Income or Capital Gains?

A number of stories are coming out of people who sell an asset (condos for example), then sell and think they pay capital gains. Instead, the CRA challenges that, and states that the sale is business income. The stakes are high. Let’s say there is a profit of $50,000. If the person did not intend to buy and sell the condo for profit (i.e. bought the condo then got married and moved to a house), they should pay capital gains. The $50,000 profit is included in income at a 50% rate, or $25,000, and taxed at the highest marginal rate […]
March 10, 2013

Reduce Student Loans Using Tax Credits

Tuition increases faster than inflation, and the rates are soaring to the heights of the Ivory Tower. Meanwhile, provincial debt is increasing to the point that Ontario puts more money to interest payments on government debt than it does to postsecondary education. Universities are grappling with underfunded pension plans. Tuition is likely to remain high. There are tax credits that come with inflation, but they are around a max of 17%. Students who earn enough to use the credit gain a 17% tax credit. The rest may be carried forward to future years. The student may transfer $5,000 to a parent […]
February 28, 2013

The Three “R”s of Taxes

The Three “R”s of Taxes 1.Records. One must keep good records. Some like to keep receipts by month, some like to keep receipts by project ,others by supplier or client. It is up to you, but should be kept neatly. They are evidence that supports your financial statement assertions. Receipts could also be electronic, but one must back them up periodically. By back up, that means burn the file on a CD (separate from a computer that could crash), or on a RAID system (series of hard drives with redundant copies), or in the Cloud. Contracts should have a paper […]