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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 2010 must be reported on T4 slips, which are due on or before February 28, 2011.
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.
Also, under a change introduced in the 2009 federal budget, a temporary increase in the CCA rate, from 55% to 100%, is available for eligible computers and software acquired after January 27, 2009 and before February 2011. This 100% CCA rate will not be subject to the half-year rule. As a result of this measure, a business will be able to fully deduct the cost of an eligible computer (including the systems software for that computer) in the first year that CCA deductions are available.
For this purpose, eligible computers and systems software acquired by a taxpayer will have to be new computer equipment and software described in Class 50 for use in and for the purpose of earning income in Canada. The 100% CCA rate will also apply to eligible property that may otherwise be included in CCA Class 29 provided that it meets specific conditions. To qualify for this incentive, make sure you purchase the computer equipment before the end of January 2011.
Next section: Owner-manager considerations
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