A little bit of tax planning before the tax month can get your business prepared and may be even save a few bucks in the processes. Here’s what you need to know for tax planning in 2016.
Tax payers are subjected to various tax brackets and high income earners have to pay portioned tax rate on their income. Through income splitting, you can split the income with a family member. You can do this by either registering the family member as an employee or subscribe for the shares of your corporation. Don’t over-compensate the family member on the pay roll, and the family member should be above 18 years to qualify for the working age.
If you assign the share to the family member, you will have to restructure the company shares. Dividends paid by before the year end may generate tax refunds on the tax return, if it is previously earned investment income on which it paid tax.
Time Capital Asset Purchases
Majority of capital asset classes are subjected to the half-year rule under Canadian tax law. Your business can only claim one half of the annual depreciation in the year of acquisition when the half-year rule applies. With this in mind, you should plan your purchase timings for assets. Opt to buy the assets before the fiscal year is over to avoid the depreciation.
If you wait to purchase the capital asset till the coming year, you will have to wait for a full fiscal year before the maximum depreciation rate can be applied.
Dividends and Salary Split
If you draw your income from the salary and dividends, then you don’t want to be over-taxed. Your salary is taxed for the Canada Pension Plan. You can avoid this by going in for dividend pay instead of salary payment.
Home Office Expense
If you work from home, you can add some of the expenses to business accounts like utilities, rent, and property tax. However, there are some rules for this.
More than 50% of the time, the space must be used for work
The workspace must be exclusively used to earn business income on a continuous basis
Getting your business and accounts ready for next year’s tax filing right now is a smart thing to do. This way you won’t miss any of these tax benefits and you won’t feel that last minute pressure of needing to file your taxes.