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<\/p>\nby J. Stephen Pope<\/b><\/p>\n
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One way to maximize your business profits is by reducing your taxes. Frequently, income and other taxes could be lowered significantly if only the taxpayer were willing to plan ahead. By taking some simple steps to rearrange your affairs, you could save a fortune!<\/p>\n
1. Are You Splitting Your Business Income?<\/b> <\/p>\n
You may pay reasonable salaries to spouse or children through your incorporated or unincorporated business. If you are not doing so, you may be missing out on some real tax savings.<\/p>\n
In the Canadian Federal Budget of February 16, 1999, measures were introduced to discourage income-splitting with minor children through family trusts. However, these measures do not apply to paying reasonable wages to family members. Thus, this may be one of the last ways of legally splitting income left for the small business person with minor children.<\/p>\n
Obviously, the amounts paid must bear some relationship to the work performed. Of course, all required payroll taxes should be remitted and proper records need to be maintained.<\/p>\n
Why not rearrange your affairs so that family members with little or no income can perform duties for and be paid by your business? Then, they can contribute out of their own income towards the operation of the household. In this way, little or no tax will be paid by your dependants and you will have successfully shifted taxable income out of your hands.<\/p>\n
2. Should You Register For The Goods And Services Tax?<\/b> <\/p>\n
Even if your business grosses less than $30,000.00 per year in taxable sales, you may still benefit by registering your business to collect the Goods and Services Tax (G.S.T.). If you are not doing so, you may be missing out on some real tax savings.<\/p>\n
For example, you will be paying G.S.T. on many of your business expenses. If not registered for G.S.T., you must absorb this cost. If registered, you may deduct the G.S.T. paid on such business expenses (input tax credits) from the tax collected. Many business persons expect to pay G.S.T. and it doesn’t really cost them anything since they deduct such amounts as input tax credits from the G.S.T. they collect from their customers. <\/p>\n
In some cases, the quick method of calculating G.S.T. may actually allow you to retain more of the G.S.T. collected than you would have just claiming the G.S.T. actually paid by you.<\/p>\n
A factor to consider also: If you are not registered for G.S.T. in Canada, you are telling your clients that you do under $30,000.00 per year in taxable sales or that you cheat. Is this the image you want your clients to have?<\/p>\n
3. Could You Benefit From Incorporating Your Business?<\/b> <\/p>\n