20 Strategies to Strengthen your Business in Challenging Times
Taking Care of Business
It is important to think about issues that will have the greatest impact on your business. Every business should look at their tax situation to ensure the tax planning practices you have used in the past are still relevant, and help you determine if specific tax planning ideas can minimize or defer taxes.
Protecting your assets is always critical, as is keeping a close eye on your financial state, whether you are minimizing or deferring taxes or protecting your assets.
7. Plan for Capital Losses
Corporations can trigger capital losses and where these losses exceed current year gains, the resulting net capital loss can be carried back to the previous three taxation years. In the case of a corporation, prior taxable capital gains are subject to refundable tax. So, if a dividend was paid by your corporation in the prior three years, the refundable tax associated with these gains may have already been refunded to your corporation. In this case, it may make sense to carry capital losses forward to apply against future gains.
8. Utilize Corporate Group Losses
Where you have more than one corporation, you may find you have income in one corporation and losses in another (or property with an accrued gain in one corporation and property with an accrued loss in another). If this is the case, there are a number of strategies to consider, including:
Merge the corporations – It may be possible to merge one or more corporations so income and losses (or capital gains and capital losses) are offset directly;
Review intercorporate interest and expense charges – Subject to reasonability, it may be possible to adjust intercorporate charges so income is increased for corporations with unapplied losses;
Transfer a gain property to a loss corporation before a sale – Depending on the circumstances, it may be possible to transfer a property with an accrued gain to a corporation with unapplied losses prior to a sale. This could allow the loss corporation to use its losses to offset the gain; and
Loan funds to loss corporations without interest – Where a corporation has losses, an interest-free loan to that corporation will enhance its ability to generate income.
9. Consider Paying Dividends from Your Corporation
If your corporation has had capital gains in the past or received life insurance proceeds, consider paying a tax-free capital dividend now. Depending on the circumstances, future capital losses can reduce the amount that can be paid as a capital dividend. Also, if your corporation has refundable tax on hand, paying a taxable dividend to trigger a refund of this tax in your corporation may make sense (especially if your corporation can pay an eligible dividend).
10. Review Your Corporation’s Instalment Obligations
A corporation can pay income tax instalments based on an estimate if you believe its corporate income tax for the current year will be lower (interest and penalties will arise if tax is underestimated).
11. Review Your Remuneration Strategies
If corporate income falls, you should review your owner-manager remuneration planning to determine whether dividends or salary should be paid. It may also be a good time to revisit income splitting strategies to ensure you pay as little tax as possible on distributions from your corporation. For example, it may be possible to pay dividends to adult family members with little or no tax.
12. Review Your GST and PST Status
When finances are strained, it is more important than ever to ensure you are not overpaying GST and PST. In addition, you may be charging tax in situations where it is not required. Addressing this is beneficial if it means your customers will have more money to spend on your products or services.
13. Ensure Research and Development (R&D) Costs Are Identified and Claimed
Many Canadian businesses are engaged in R&D and don’t know it. Most people associate R&D with work done in a laboratory by skilled scientists. However, R&D activities for small and medium-sized businesses are often integrated with daily business activities. The Canadian government’s Scientific Research & Experimental Development (SR&ED) rules offer generous tax incentives of which you can take advantage.
14. Watch for Fraud
Unfortunately we often see an increase in fraud or theft in challenging economic times. In many cases, the fraud or theft is perpetuated by employees that are experiencing personal financial hardships. Often these employees start with the intention of repaying the funds, but end up getting deeper and deeper in debt until they cannot replace the cash they have taken.
Every business owner learns early on that cash is critical to its survival. It becomes important for controls to be strong, regularly reviewed by management and improved as often as necessary to minimize theft or fraud. Unfortunately, many small to medium-sized businesses cannot afford sophisticated control procedures and fraud or theft sometimes occurs.
This does not mean that efforts should not be made to identify areas where controls are needed. Often the existence of controls, even if small, can be a deterrent for employees considering fraud. In addition, human resource policies that require people to rotate in their positions and take mandatory vacations provide additional protection in preventing the concealment of inappropriate behavior. A review of your practices and controls is a helpful step towards the reduction of fraud and the preservation of your assets.
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