Canadian private business owners should start thinking about how to make their companies more tax efficient now rather than waiting until tax time in April, says EY Canada.
"Tax rules evolve every year, and it's important for private business owners to know how these changes will affect their private company," says Ken Kyriacou, EY Canada Tax Partner, Private Client Services. "Planning now for 2020 taxes may seem a little premature. But it can mean the difference between big savings or bigger disappointments. Getting a head-start can minimize the income tax you pay on 2019 tax returns."
EY suggests Canadian private business owners consider five questions to identify savings opportunities on their 2019 tax bill and beyond.
- Are there any income-splitting techniques available to you?
If there are, EY says people may be able to lower their family's tax burden by taking advantage of differences in family members' marginal income tax brackets. Income-splitting loans can be used to loan funds to a family member at the prescribed interest rate of 2% (for loans created in 2019). The family member can invest the money without the investment income being attributed to you if the interest is paid before January 30.
- Do you hold passive income?
Recent amendments effective for taxation years beginning after 2018 may limit a Canadian-controlled private corporation's access to the small business deduction and the small business tax rate in a taxation year to the extent that it holds passive investments that generate more than $50,000 of income in the preceding year.
- Do you income-split your private company business earnings with adult family members?
Recent amendments may limit income-splitting opportunities with certain adult family members through the use of private corporations in 2018 and later years.
- Did you conduct training?
The Canada training credit is a new refundable tax credit. Effective for 2020 and beyond, the training credit will assist eligible individuals who have either employment or business income to cover the cost of up to one-half of eligible tuition and fees associated with training. Beginning in 2019, eligible individuals can accumulate $250 a year in a notional account which can be used to cover training costs.
- Have you thought about estate planning?
Review and update your will periodically to reflect changes in your family status, financial situation and the law. An estate freeze can also help to minimize tax on death and/or probate fees. Consider the impact of the revised rules for the taxation of testamentary trusts and charitable planned giving, and the implication of the revised tax on split income rules.
