The deadline for Canadian businesses to file their tax returns is midnight on June 15, but there is still time for entrepreneurs to take advantage of money-saving strategies, says Mark Shoniker, director of commercial banking at BMO Bank of Montreal.
"It's not too late to maximize tax incentives that can ultimately help small-business owners boost their bottom line," he says.
Key tax tips for business owners found on the BMO SmartSteps for Business website include:
"Family-run businesses can capitalize on income-splitting by hiring a spouse or children as employees, since a reasonable salary is deductible. They pay the tax themselves, and if they pay at a lower rate, there could be tax savings for the overall family. Take caution to ensure their pay is reasonable, their roles in the company are clearly defined, and their performance is well documented."
Deductions for small businesses
"A small business tax deduction can reduce the combined corporate tax rate on the first $500,000 of active business income to as low as 12 per cent. The deduction may be available if your company qualifies as a Canada Controlled Private Corporation (CCPC), carrying on an active business in Canada."
Exemptions for capital gains
"Small business shares can qualify for a lifetime capital gains exemption of up to $750,000. Some rules apply, however, including that the claimant must have owned the shares for at least two years before selling."
"Small business owners who have incorporated their business have greater flexibility in determining how to be compensated, such as choosing to pay themselves a salary, dividend, or both. For example, a reasonable salary can create personal RRSP room, provide a deduction for the business, and help bring taxable income below the $500,000 threshold for the small business deduction. On the other hand, a dividend may be taxed at a lower rate for the owner than a salary or bonus, but would not be deductible for tax purposes.
"It is important to note that with corporate tax rates poised to decline in Canada, knocking down profit to below $500,000 by taking out salaries may not be the best strategy. Instead, small business owners could pay the corporate tax rate instead of the top personal rate, and wait until funds are needed before paying a dividend."