Make use of these year end tax planning stratategies to lower your business income tax payable.
Income Splitting
It is a wise year-end tax strategy for business owners to determine the amount of salaries and/or dividends to pay their family members. In order to derive the optimal amounts of remuneration, consider factors such as each individual’s marginal tax rate, need for cash, corporation’s tax rate and benefits of deferral.
Although income splitting has become somewhat restrictive since 2018, there are still strategies available through which income can be split in a tax-efficient manner. A permissible option is to pay wages for actual work performed. If your children work for the business, consider paying them salaries for work performed in 2019. However, in doing so the pivotal condition to keep in mind is salaries have to be of reasonable amounts; possibly think what you would have paid a third party.
Furthermore, salaries and bonuses earned in 2019 must be paid within 179 days of the business’s year end for the amounts to be deductible in 2019. This results in your business getting a deduction in 2019, and your family members not having to pay tax on it until 2020.
Purchase depreciable assets
If you are thinking of purchasing depreciable assets for use in your business, there can be a tax benefit if acquisition is made by December 31, 2019. Tax depreciation (Capital Cost Allowance) can be claimed on assets owned (or purchased) on December 31, 2019; this in turn would reduce your business income for the year. Remember, in order to qualify for the deduction asset needs to be put in use (available for use) before year-end.
Delaying asset sale
When planning to dispose off your business’s depreciable assets, real property that is capital property, and investments, consider delaying the sale until 2020. This qualifies your business to claim an additional year of CCA and postpone tax on recaptured CCA (excess tax depreciation) and capital gains by one year.
For professional advice, contact Alpha Accountzy, Accounting & Tax Solutions.
