Owners-Managers

Year End Tax Planning Checklist

The following checklist provides tactics you should consider as part of your year-end tax planning. If you need further explanation, please contact Chaplin & Co., Chartered Accountants at 416 667 7060.

  • Instalments – reduce instalments if you anticipate that the current year’s taxable income will be less than the prior year’s taxable income.
  • Final tax balances – Pay final corporate income tax balances within two months after year end (three months for certain Canadian-Controlled private Corporations).
  • Salary/dividend mix – Determine the optimal salary/dividend mix for you and other family members for 2016.
  • Pay salary or bonus – rather than dividends generally when taxable income exceeds $500,000.
    • If the individual’s tax rate is higher than the corporation’s, retain in the corporation income on which the corporation pays tax, to allow personal tax to be deferred.
  • Remuneration accruals – Accrue salary and bonuses before the year end of your business. Ensure that accrued amounts are paid within 180 days at the corporation’s year-end.
  • Employee gifts and awards – Consider the CRA’s policies when formulating an employee gift and award program.
  • Salaries to family members – Pay a reasonable salary to a lower-tax bracket spouse or child who provides services to your business.
  • Corporate withdrawals – Make tax-effective withdrawals of cash from your corporation (e.g., by paying dividends, non-taxable capital dividends, or a return of capital).
  • Depreciable assets – Accelerate purchase of depreciable assets.
  • Reserves – Identify and claim any additional reserves for doubtful accounts receivable or inventory obsolescence.
  • Dividends – Convert dividends to capital gains.
  • Dispositions – Defer planned dispositions that will result in income until after year end.
  • Costs of doing business – Compare costs of doing business in different jurisdictions.
  • Sales to related businesses – Ensure that goods sold to related businesses are resold to third parties before year end.
  • $824,176 capital gains election
    • ensure that the company qualifies as a qualified small business corporation.
    • crystallize the capital gain now.
    • consider taking steps to have your spouse or children share in future appreciation to use their $824,176 capital gains exemption.
    • determine whether you have a cumulative net investment loss (CNIL) amount which will affect any capital gains exemption claim.
    • if you have already used your exemptions, consider transferring private company shares to your RRSP if a cash contribution is not practical
  • Capital gains rollover – Investment proceeds on the sale of eligible small business investments in other eligible small business investments.
  • Inter-company charges – Ensure inter-company charges are reasonable given changes in the economy. Consider GST/HST implications on such transactions
  • Donations – Make charitable donations and political donations before year-end.
  • Shareholder loans to your corporation – Have your corporation pay deductible interest on shareholder loans made to the corporation in order to reduce active business income to the $500,000 threshold. This threshold may be higher in some jurisdictions.
  • Shareholder loans from your corporation – Repay shareholder loans from your corporation no later than one tax year after the amount is borrowed (exceptions apply).
  • Fines and penalties – most government and court fines are not deductible.
  • Professionals and sole proprietorships
    • Consider making election to retain your off-calendar year-end.
    • If your business is growing and the income increasing annually, the alternative method may provide some income tax deferral.
    • If you are operating a successful unincorporated business, consider whether incorporation of the business will provide additional commercial and tax benefits
    • Review whether you should incorporate your professional business, if allowed by your licensing..
  • Tax planning areas to consider
    • There are fairly significant tax changes coming if the new government follows through with all the changes that they promised during their campaign. Please consider the following planning areas prior to 2016, if you are an owner/manager of a business.
    • There are new tax changes coming to trusts in 2016. Any new trusts you create will be affected by these new rules. Starting in 2016, all trusts will be taxed at the top federal rates except for Graduated Rate Estates (GRE) and Qualified Disability Trusts.
    • A GRE is an estate that arises as a result of the death of an individual. GRE’s will enjoy graduated rates for only 36 months following the date of death. There are transitional rules for trusts and estates created before January 1, 2016.
    • Don’t forget basic tax planning strategies for your business. You might want to repay shareholder loans as in most cases if they are not repaid within one year after the company’s taxation year in which the loan was made, they will be included in your income. Also, if you borrow money from a corporation with no interest or a low rate, you may be receiving a taxable benefit and have to include it on your tax return. It is a good idea to clear shareholder loan debit balances.
    • It is always good strategy to pay out capital dividends and reduce the capital dividend account to Nil.
    • Look into crystallizing the lifetime capital gains exemption.
    • Reasonable salaries paid to your family members for employment in your company can save taxes.
    • Pay yourself a salary with enough earned income to maximize the RRSP contribution for the year following.
    • For payrolls under $450,000 there is no employer health tax owing.