Quotations by Evelyn Jacks

In some cases, capital gains taxes can be avoided when assets are disposed of. The Capital Gains Exception (CGE) exempts just under $900,000 when qualifying small business corporations are disposed of. On the tax return, 50% of the CGE will be claimed, and this is known as the capital gains deduction. You do have some control over when you sell or otherwise dispose of an asset. Therefore, you have the potential to reduce the marginal tax rate on your investments through purposeful time. E.g. you could reduce your tax burden by disposing of the asset over 2 tax years (half in December, half in January) or by offsetting capital gains in the year with allowable capital losses. [2020] - Evelyn Jacks

The RRSP is a "must-have" investment for business owners. It provides a way for you to invest in a tax-deferred savings vehicle that can enable a legitimate way to split income with your spouse (through a spousal RRSP) while reducing the taxes you pay today and deferring the tax on your investment earnings to the future. [2020] - Evelyn Jacks

Most businesses must use the accrual method of accounting. Income is reported when "earned" (rather than received), and expenses are deducted as they're "incurred" (rather than actually paid). [2020] - Evelyn Jacks

Corporations must keep their records for 6 years from the end of their fiscal period. However, certain records, like those relating to the acquisition of long-term assets or any records that could affect the sale or wind up of your business must be kept indefinitely. You can request permission to destroy your records earlier than that, using Form T137; however, this may be an invitation for a tax audit first. [2020] - Evelyn Jacks

Corporate returns must be filed within 6 months of the end of the corporation's fiscal year, even if there is no tax payable. This requirement applies to tax-exempt corporations, inactive corporations and non-profit organizations. The only exception is a registered charity; however, this type of corporation must file an information return within 6 months of the end of its fiscal year. [2020] - Evelyn Jacks

The Income Tax Act grants to CRA a number of arbitrary powers. The Minister doesn't have to accept your return as filed. In fact, under Section 152(7), CRA has the right to change your tax return if they don't agree with the way you've filed it. They can change your income figures, your deductions or your credits prior to the expiration of a normal "reassessment period," which is 3 years. If you don't agree with how your tax return has been assessed, you have the right to appeal the results. [2020] - Evelyn Jacks

Personal expenses of any kind are not allowable business expenses. Fines or penalties imposed after March 22, 2004, by any level of government (including foreign governments) will not be tax deductible. Also not allowable is the cost of a golf membership or certain advertising in foreign media. Restricted expenses include the costs of meals and entertainment (50% deductible) and the costs of attending conventions (only two per year). Home workspace expenses are another example, restricted to net income from the business. [2020] - Evelyn Jacks

CRA issued IT-518 to overview their position with regard to the deductibility of food, beverages and entertainment. Reasonable amounts may be deducted if the costs were incurred in the course of earning income from a business or property. The total costs must be restricted to 50% of the amounts actually paid or payable. You can fully deduct the cost of any meals and beverages served or entertainment provided on planes, trains or buses (but not ships, boats or ferries), so keep a log of those expenditures, as receipts are normally not available, and CRA will allow a reasonable amount as your claim. [2020] - Evelyn Jacks

If you're facing an unfavorable reassessment of tax, know your appeal rights and deadlines. Ask your advisors for information about your rights to voluntarily comply with the law on an informal basis, or in more serious cases, through the court system. Be highly pro-active. [2020] - Evelyn Jacks

Ordinary income like employment, pension and interest income will attract higher marginal rates of tax than dividends and capital gains. Your after-tax results also depend on your province of residence. This illustration highlights marginal tax rates on various income sources in the province of British Columbia, the best province in the country in which to earn dividend income. In some provinces, you can earn well in excess of $30,000 in dividends before paying any tax. If you choose to earn dividends only from your small business corporation, you'll miss maximizing the CPP and RRSP contribution room you'll build by taking a salary. [2020] - Evelyn Jacks

The interest paid on money borrowed to in TFSAs, RRSPs, RDSPs and RESPs will not be deductible. Opening a home-based business and claiming home office expenses will make your mortgage interest costs partially deductible, or you can borrow against the equity in the home, place investments in non-registered accounts and then write off the interest on the loan. Discuss these options with your tax advisor. [2020] - Evelyn Jacks

The first $500,000 of active business income earned within a Canadian-Controlled Private Corporation (CCPC) that qualifies for the small business deduction is subject to a lower federal corporate tax rate. However, effective January 1, 2019, companies that have too much of their retained earnings invested inside the corporation will be subject to new passive investment income rules, which will reduce their access to the small business deduction. While this will generally affect larger and more mature businesses, it's a good idea to have your accountant explain these rules to you so you can plan accordingly. [2020] - Evelyn Jacks

In a perfectly integrated system, the amount of total taxes paid by the individual and corporation will be identical to the total taxes paid by the individual alone, regardless of the individual's marginal tax rate. Taxpayers and their advisors must carefully review the salary/ bonus / dividend mix that generates annual taxable income for each family member. For more profitable corporations, it might make sense to reduce taxable corporate income to stay bellow the federal Small Business Deduction (SBD) $500,000 by paying out a year-end bonus, which will be personally taxed as salary. If the corporation earns more than $50,000 in passive investment income, access to the SBD is affected. [2020] - Evelyn Jacks

The dividends you receive will be "grossed-up" for the purposes of personal tax reporting. This has the effect of increasing your net income, the figure on which many tax credits and social benefits payments are calculated. Be sure you have some "what if" calculations done before declaring and paying dividends to make sure you don't inadvertently reduce your Old Age Security or Canada Child Benefits. [2020] - Evelyn Jacks