Tis The Season To Plan

National Post

2009-12-01


The Holidays Signal Year-End For Many Firms. Ring Out The Old On The Right Foot

If your corporation has a Dec. 31 year-end, here are a couple of key tax planning opportunities to focus on this month.

CONSIDER THE OPTIMAL MIX OF SALARY AND DIVIDENDS

When determining how much and what form of remuneration to pay yourself (or family members) for 2009, there are a number of factors to consider. These include your marginal tax rate this year versus your expected marginal tax rate for 2010, the corporation's tax rate for this year versus next, as well as your desire to make CPP and/or RRSP contributions. For example, to maximize CPP contributions for 2009, you would have to pay yourself at least $46,300 in salary or bonus (dividends don't count) to be able to contribute the full $2,118. Similarly, to maximize 2010 RRSP contributions, you must pay yourself at least $122,222 of salary or bonus in 2009 to hit the 2010 contribution limit of $22,000.

If your corporation has extra cash that you don't need this year, consider leaving it inside the corporation. The reason? There is a substantial tax deferral on business income (not investment income) that has been taxed at corporate rates but left inside your corporation. For example, the deferral advantage for active business income eligible for the small-business deduction (SBD) ranges from a low of 25% in Alberta to a high of more than 35% in Manitoba. If you are paying eligible dividends, which are essentially dividends paid from active business income not eligible for the SBD, you should make those dividend payments in 2009 instead of 2010, as the tax rates on eligible dividends are going up for all provinces and territories in 2010, with the exception of New Brunswick.

BUY NEW EQUIPMENT BEFORE YEAR-END

Consider accelerating the purchase of new business equipment or office furniture that you may have been planning to purchase in 2010. Under the tax rules, you are permitted to deduct, under the "half-year rule," one half of a full year's tax depreciation ( "capital cost allowance") in 2009, even if you make your purchases on the last day of the year. For 2010, you can then proceed to claim a full year's depreciation. Also, keep in mind that this year's federal budget introduced a new 100% tax depreciation rate for eligible computers and software acquired after Jan. 27, 2009 and before February 2011. This 100% write-off rate is not subject to the "half-year rule," thus entitling the purchaser to write off the entire cost of the computer equipment purchased in the year of acquisition.