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Year end tax tips for businesses owners

Business owners are facing all types of challenges this year, including the pending tax changes that have just been finalized this week. Given the proposed changes, and the fact that 2018 is fast approaching, here are some tips to consider that could make life less taxing if you’re a business owner — get it?!

1. Pay dividends to family members:

Moving forward, the payment of dividends to family members who are not working in, providing capital to, or assuming risks related to the business will be disallowed. These changes are to be effective Jan. 1 so consider taking advantage of the current rules by paying additional dividends to family members in 2017.

 

2. Consider a reorganization:

It may make sense to provide a different class of shares to different family members so that going forward you can pay dividends on certain classes of shares to certain individuals, and not others. This will allow you more control over how you distribute dividend income to others, allowing you to avoid any punitive tax that might apply to dividends received by children under the age of 25, or might otherwise be effected by the new rules.

 

3. Defer payment of capital dividends:

If your company has a balance in its capital-dividend account it’s possible to pay tax-free capital dividends to any shareholders. These capital dividends will be especially helpful in the following year(s) if it becomes problematic to pay regular dividends to family members given the expected tax changes — paying them capital dividends will side-step higher taxes resulting from the tax changes.

4. Push taxable income into 2018:

Tax rates on small businesses eligible for the small-business deduction will be dropping to 10% federally come 2018, so it makes sense to push taxable income into your 2018 fiscal year if possible. You can do this by accelerating deductions and claiming them in 2017 instead, or deferring certain work until 2018.

5. Revisit your salary-dividend mix:

Things you should consider are your personal marginal tax rate, the tax rate of your company, payroll and health taxes, your desire (or not) to contribute to the Canada Pension Plan and whether you want to create RRSP contribution room.

6. Repay shareholder loans:

Any money borrowed from your corporation is generally taxable unless you repay the loan by the end of the year following the year that you borrowed the money. On the other hand, if you’ve lent money to your corporation, you might want to take repayment of all or some of that amount. Speak to a professional, like one of our partners or managers, as there are options to consider; such as charging interest on loans you’ve made to your company.

7. Improve cash flow in the short term:

Cash is king. Reduce your tax installments if you expect business income to be lower next year.


As always, speak with a professional before making any changes or contributions. In the end, we want what is best for your business just as much as you do. Contact us for more information pertaining directly to your business: info@kbh.ca