Weekly Tax Tips
Consider planning to reduce your corporation’s taxable capital before year-end
23 Oct 2009
Depending on their size, corporations can be subject to provincial capital taxes. The jurisdictions vary in how they calculate taxable capital and the rate at which the tax is charged. Note that some jurisdictions have reduced, and in some cases eliminated, capital tax. For those jurisdictions which continue to levy capital tax, taxable capital usually includes share capital and debt and may require some tax based adjustments. All jurisdictions that impose capital tax provide an allowance which reduces taxable capital for certain specified investments.
There are a number of very simple steps that can be taken prior to year-end to reduce capital tax. For instance, using excess cash to pay off some debts may reduce your taxable capital. Consult your BDO tax advisor for further information on planning points that may be applicable to your situation.
You should note that Canadian-Controlled Private Corporations (CCPCs) with taxable capital in excess of $10 million (on an associated group basis) will begin to lose access to the small business deduction and the enhanced 35% investment tax credit for research and development. Taxable capital for the prior year is generally used in determining how much of these benefits are lost. Access to the small business deduction is eliminated when taxable capital reaches $15 million and access to the enhanced 35% investment tax credit is eliminated when taxable capital reaches $50 million. The $50 million amount is applicable for taxation years ending on or after February 26, 2008 and is subject to proration for taxation years that include this date (previously the amount was $15 million). The “clawback” of these benefits represents another reason why capital tax planning should become an important part of your year-end tax review.
This tax tip is a publication of BDO Dunwoody LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this tax tip is current as of 23 Oct 2009.
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