Blog: Tax Tips 2017: For Corporations and the Self-EmployedDecember 21st, 2017
From our annual Tax Tips guide, here are the tips and suggestions for Corporation and the Self-Employed for the year 2017.
Tax Tips: If you have your own corporation
1. Consider your optimum salary/ dividend mix to achieve less overall tax:
- Salary will qualify you and other family members active in the business for RRSP contributions, Canada Pension Plan (CPP) contributions, and child-care deductions. Dividends will not qualify an individual for these contributions or deductions.
- Dividends, on the other hand, may cost the family unit less in current taxes. Each family member, over 17 years of age and receiving non-eligible dividend income of approximately
- $33,308 or less, or $51,635 or less of eligible dividends, from taxable Canadian corporations, will pay little or no income tax (a small Ontario Health Tax premium may apply). The tax on split income eliminates the tax benefits of paying dividends to children under 18 years of age. Note that 2017 may be the last year to split dividend income with family members who are not active in the business. As discussed previously, the proposed changes to the TOSI rules will curtail the tax benefits. We expect the new rules to apply to the 2018 and subsequent tax years.
- Consider accessing funds from the corporation that can be withdrawn tax-free. For example, repay shareholder loans, return capital to shareholders up to the lesser of the paid-up capital and the adjusted cost base of the shares, or roll in personal assets with a high cost base to the corporation on a tax-free basis to extract the cost base of the assets on a tax-free basis.
2. Defer income that is not required personally for longer period:
- If you do not require cash from your corporation to spend personally, consider keeping the funds invested in your corporation and defer the extra dividend tax payable on the withdrawal of the funds.
3. Dividend income splitting with adult children:
- If you have children who are 18 years of age or older and for whom you are currently funding expenses, consider reorganizing the shareholdings of your corporation to enable income splitting with your children. A reorganization would involve your children (or a trust for their benefit) receiving dividend-paying shares of the corporation. If your children do not already earn income that is taxed at the top marginal tax rate, then the dividend income will be taxed more favourably in their hands.
- Given the proposed tax changes in respect of dividend income splitting (see article here), which we expect to be effective January 1, 2018, consideration should be given to maximizing 2017 income splitting dividends as 2017 will be the last year to take advantage of the lower marginal tax rates enjoyed by the recipient individuals.
4. Consider instalments for 2018:
- The threshold above which corporations must pay income tax, GST and source deductions instalments is $3,000. The threshold will be based on 2017 tax amounts payable.
- Certain Canadian-controlled private corporations are allowed to make quarterly, instead of monthly, income tax instalments. To qualify, certain conditions must be met, including the following criteria relating to the 2017 taxation year:
- The corporation has been in perfect compliance in the previous 12 months;
- The corporation was entitled to the small business deduction;
- The taxable income of the associated group did not exceed $500,000; and
- The taxable capital of the associated group did not exceed $10 million.
- Instalment planning for 2018 can be addressed during 2017 by meeting the conditions where applicable.
Tax Tips: If you are self-employed
5. If you have a home office and you meet certain conditions, you can deduct eligible home office expenses, including a portion of your mortgage interest, home insurance, property taxes, utilities and minor repairs.
6. Consider the potential benefits of incorporating your business.
Did you know?
- In October of 2017, the Government announced a reduction to the small business deduction rate effective January 1, 2018. The rate will decrease from 10.5 per cent to 10 per cent for 2018, and will decrease even further to 9 per cent for 2019. Ontario also announced a reduction to the small business rate to 3.5 per cent (from 4.5 per cent) on January 1, 2018. These rate reductions result in a larger deferral of after-tax business profits in the corporation that can be reinvested in the business.
- Budget 2017 introduced clarifications to the rules surrounding control of a corporation for tax years that begin after March 22, 2017. The test to determine control has been widened greatly to consider circumstances, generally, where an individual exercises operational control of the business. What this means is that a related person may factually control the corporation through their operational decision-making even though they may not own shares of the corporation or sit on the board of directors. This can result in adverse tax consequences and further tax advice should be sought should you determine your corporation is at risk.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.