Businesse Income
Many planning points are also available to individuals who carry on business.
Pay reasonable salaries to family members before year-end
If your spouse or children work for you, consider paying them salaries. Salaries paid reduce your income and are taxed in their hands, possibly at lower marginal tax rates than if the income had been paid to you. They also provide family members with earned income for RRSP contributions.
Any salary paid must be reasonable given the services performed. A good rule of thumb is to pay them what you would have paid a third party. A record should be kept of the time actually spent and the services actually performed.
Also, whenever you pay salaries to your spouse or children, ensure that withholdings for income tax, Canada/ Québec Pension Plan (CPP/QPP), Employment Insurance (EI) (where an exemption is not available) and any applicable provincial payroll taxes are remitted as required. The salary and the amounts withheld for 2007 must be reported on T4 slips, which are due on or before February 29, 2008.
Purchase capital assets before year-end
If you’re planning to purchase capital assets in the near future, consider doing so before the end of your fiscal year. If the assets are acquired and in use before year-end, you can claim one-half the usual CCA rate. Even if you’re in a loss position this year, purchasing the asset now will allow a full year’s CCA claim next year. Bear in mind that title to the asset must be acquired and it must be available for use in order to claim CCA.
Next section: Owner-manager considerations
Download this issue of the Tax Factor
