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Tax-saving strategies for business owners at year end

Tim Cestnick writes a weekly column on taxes in the Globe and Mail. He's worth paying attention to. But be sure to consult your own professional advisers about implementing any particular strategy. Tim's November 15, 2012 column, "For business owners, six tax-saving strategies for the year-end checklist" is timely and well worth considering.
Most of the strategies are aimed at compensation for the business owner and his or her family. And some of them are only available to owners of incorporated businesses.
From a corporate law perspective, if the business owner wishes to take dividends or even bonuses (which are taxed as employment income), either personally or to another family member, be sure to see your tax accountant well before December 31, so that instructions may be issued to your corporate lawyer to write up supporting corporate resolutions for those dividends or bonuses, and the resolutions passed, before December 31.

  • Review compensation mix: Could require director resolutions for dividend payments or bonuses.
  • Pay salaries to family members: if you're being careful, you may want to have a simple employment agreement with the person, and if bonuses, as opposed to regular salary, are to be paid, then a director resolution approving the bonus is appropriate.
  • Pay tax-free amounts: Tim here makes passing reference to one option being a "capital dividend". In particular, do not pay these dividends before getting professional advice. There are very short filing deadlines to inform CRA about this kind of payment, and penalties if you mess up.
  • Manage shareholder loans carefully: again, supporting corporate resolutions are helpful.
  • Protect business assets: The strategy mentioned here requires a holding corporation to be set up (which we'd be pleased to help with). And moving assets from an operating company to a holding company needs to be done with full knowledge of the tax consequences you'll be generating and documented on the legal side of things. For the secured assets strategy, you'll need a lawyer to draw and register a suitable general security agreement under your provincial legislation.
  • Time purchase and sale of capital assets: Purchases on the larger side benefit from having a lawyer review or handle the transaction.

In Canada, a business is one of the best tax-saving or tax-managing opportunities a person can have. Tim's article reminds us to be pro-active, though, about taking advantage of those opportunities.

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Incorporating can improve your business image.