Getting Ready For Year End Taxes.


  1. If the following expenditures are made by individuals by December 31, 2008 they will be eligible for 2008 tax deductions: moving expenses, child care expenses, safety deposit box fees, charitable donations, political contributions and medical expenses.

  2. 2008 eligible Registered Retirement Savings Plan (RRSP) contribution amounts are noted on the 2007 personal income tax return assessment notices. You have until March 1, 2009 to make tax deductible RRSP contributions for the 2008 year. Consider contributing to a spousal RRSP to achieve income splitting in the future.
    • The maximum 2008/2009 additions to deductible RRSP contribution room are $20,000. The 2008 contribution requires 2008 earned income of $111,111 ($111,111 x 18% = $20,000).

  3. Persons turning age 71 in 2008 must mature their RRSP into cash, an annuity or a Registered Retirement Income Fund by December 31, 2008. Certain 2008 excess contributions may be deducted in the year 2008 if contribution room is available.

  4. If you own a business, consider paying a reasonable salary to family members for their services rendered to the business.

  5. Ensure that all deductible alimony or maintenance payments are made by December 31, 2008.

  6. An individual whose 2008 net income exceeds $63,511 will lose all, or part, of their old age security. - Senior citizens will begin to lose their income tax age credit if net income exceeds $30,936. - Individuals facing these problems should contact their professional advisors for assistance in managing their 2008 personal income.

  7. Consider purchasing assets eligible for capital cost allowance before the yearend. For example, employees may claim capital cost allowance on automobiles, aircraft and musical instruments required to be used in their employment. .

  8. If you had taxable capital gains in the year, or any of the preceding three years, consider selling capital properties with an underlying capital loss prior to the yearend. This capital loss may be offset against capital gains in the year, or in the three preceding years.

  9. If income in an inter vivos trust is to be taxed on a beneficiary's return, the income must be paid or payable to the beneficiary by December 31, 2008.

  10. Individuals may claim a tax credit related to the interest portion of student loan payments made in 2008.

  11. Registered Education Savings Plan (RESP). A Canada Education Savings Grant (CESG) for RESP contributions will be permitted equal to 20% of annual contributions for children.

  12. Health and dental premiums for the self-employed. Individuals will be allowed to deduct amounts payable in respect of the year for Private Health Service Plan coverage in computing business income provided they are actively engaged alone, or as a partner, in their business, and either self-employment is their primary source of income or their income from other sources does not exceed $10,000.

  13. Tax on Split Income. The Income Tax Act applies the maximum marginal tax rate to certain passive income of individuals under the age of 18.
    • This Includes:
    • Taxable dividends, and other shareholder benefits, on unlisted shares of Canadian and foreign companies (received directly or through a trust or partnership); and
    • Income from a partnership or trust where the income is derived from providing goods or services to a business carried on by a relative of the child or, of which the relative participates.

  14. The tax rate for higher income individuals is now significantly lower on capital gains than on dividends thereby presenting an incentive to receive capital gains.

  15. Canadian resident shareholders receiving shares in foreign tax-free reorganizations will be able to treat the shares as a reduction in adjusted cost base, as opposed to a taxable dividend.

  16. A refund of Employment Insurance paid for non-arm's length employees may be available upon application.

Remuneration

Some general guidelines to follow in remunerating the owner of a Canadian-controlled private corporation earning "active business income" include:


  1. In general, bonus down active business earnings in excess of the annual business limit - $400,000 for a December 31, 2008 yearend. Leaving corporate active business income over this amount may present a tax deferral but there will likely be an overall higher tax to pay when dividends are finally paid out. Some companies may find it advantageous to have greater than , say, $400,000 of active business income because of other federal and provincial tax incentives.

  2. Elect to pay out tax-free "capital dividend account" dividends.

  3. Consider paying dividends to obtain a refund of "refundable dividend tax on hand".

  4. Corporate earnings in excess of personal requirements could be left in the company to obtain a tax deferral. The effect on the "Qualified Small Business Corporation" status should be reviewed before selling the shares.

  5. Dividends, as opposed to salaries, will reduce an individual's cumulative net investment loss balance thereby providing greater access to the capital gain exemption.

  6. Retaining income in the corporation may effect provincial and federal capital tax and certain provincial claw-backs.
  7. Excessive personal income affects receipts subject to callbacks, such as old age security, the age credit, child tax benefits, GST credits, etc.

  8. Salary payments require source deductions to be remitted to Revenue Canada on a timely basis.
  9. 9. Individuals that wish to contribute to the Canada Pension Plan or a Registered Retirement Savings Plan may require a salary to create "earned income".

  10. Salaries paid to family members must be reasonable.

Some provinces have "payroll taxes" thereby increasing the costs of paying salaries versus dividends.