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Asking Better Questions About Year-End Tax Planning Can Lead to Big Savings
TORONTO, on Dec. 20, 2020 / CNW / – Canadian private business owners can reduce the balance owing and increase repayment potential by preparing their tax return now instead of waiting until April. EY from Canada Top 5 Year-End Tax Considerations for Private Businesses describes the savings possibilities.
“Although this very strange year is drawing to a close, we expect the impact of what happened to persist for an extended period,” said Sanjaya Ranasinghe, partner of EY Canada, Taxation. “Businesses of all shapes and sizes have been feeling the effects of COVID-19 and, for many, it has underscored the importance of making every dollar count. Private business owners who plan early will invariably find themselves in a better tax position in 2020 and beyond than those who don’t. ”
EY suggests that Canadian private business owners consider these five questions to identify savings opportunities on their 2020 tax bill and beyond.
- Do you have the ability to plan your estate and freeze transactions?
The values of many private companies suffered during the COVID-19 pandemic. This can present an opportunity to “freeze” the value of your business at current depressed prices and undertake planning to transfer future growth value of the business to family members, and possibly defer paying tax. on this future growth for an extended period of time. - Have you taken into account the impact of the change in provincial corporate tax rates in 2020?
As a rule, a company residing in Canada will be subject to provincial or territorial tax when it has a permanent establishment (e.g. an office, factory or warehouse, or when a company carries on a business through an employee or a agent). If a corporation has more than one permanent establishment, differences in corporate tax rates between provinces may provide an opportunity to reduce the overall effective tax rate of the corporation. Read more in the October issue of [email protected]. - Have you considered paying dividends to recover refundable corporate tax?
A Canadian-controlled private corporation that earns investment income during the year may be subject to a refundable corporation tax. This refundable tax balance is recorded in the “refundable tax on hand on eligible dividends” (IRDTOH) and “tax on hand on non-eligible refundable dividends” (IRDTOH) balances. - Do you have employees working from home?
Many employees have been tasked with working from home due to the pandemic. As a result, employees incurred additional expenses on everything from office furniture to higher utility bills. As announced in the November 30, 2020 economic statement, the Canada Revenue Agency (CRA) will allow a simplified deduction of up to $ 400 for employees working from home due to the pandemic. The CRA will generally not require any documentation to support this deduction. For employees who have hired more than $ 400 for home office or other expenses directly related to the performance of their duties, it may be possible to deduct these expenses. It can also be an attractive alternative to managing the logistics associated with completing the T2200 form. - Have you thought about prescribed rate loans?
Given the difficulty and complexity of dealing with the tax split income rules, many taxpayers consider using a prescribed rate loan to split their income with family members who are subject to the tax. a lower marginal rate. For loans granted after June 30, 2020, the prescribed rate is 1%, as long as the loan remains unpaid, even if the prescribed rate increases in the future. If you want to continue with this type of planning, pay attention to the timing and form of interest payments to avoid income attribution rules. Find out more in the [email protected] – december 2020 editing.
To read EY’s tax ideas and advice, visit ey.com/en_ca/tax/taxmatters.
To learn more about how EY works with private companies, visit ey.com/ca/prive.
About EY
EY exists to build a better world of work, helping to create long-term value for customers, individuals and society and to build confidence in the capital markets. Through data and technology, EY’s diverse teams in more than 150 countries ensure trust and help clients grow, transform and operate. Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers to the complex issues facing our world today. .
EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information on how EY collects and uses personal data and a description of the rights of individuals under data protection law can be found at ey.com/privacy. EY member firms do not practice law where local laws prohibit.
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SOURCE EY Canada
For more information: Chiara Battaglia, [email protected], 514 833 3337; Victoria McQueen, [email protected], 416,943,3141; Dina Elchourafa, [email protected], 416 941 1818
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