Summer is a great time for barbeques, but also for tax planning!! This is the best time to review what you can do to save taxes. The following are some general strategies to consider.
1. Family members should receive reasonable salaries for
tasks and duties performed for your practice. As well, they should be paid in the same manner and frequency as your other employees. It is also important that you prepare detailed job descriptions of the services performed by your family.
2. In most families, there are usually “high tax bracket” family members and “lower tax bracket” family members. One of the ways of saving taxes is to ensure that investment income is taxed in the “lower tax bracket” members’ hands. To accomplish this, the “high tax bracket” members should pay for all personal expenses, such as shelter, food, vacations, etc. This would allow the “lower tax bracket” members to save money to invest and hence, receive investment income and dividends, which would be taxed in their hands.
3. If you have children 18 and older,
a) They can receive a reasonable income for providing
childcare to your children under 17 years. You (or your
spouse) would be able to claim these amounts as childcare
b) You may choose to give them money to invest (assuming they are in a lower tax bracket than you). This gift will not be tax deductible by you, and will not be taxable for the recipients.
However, all investment income or capital gains earned by the children, using money given to them by you, will be taxed in their hands at a lower tax rate.
4. If you have children under 18 years, you can give them money to invest. Any capital gains, which arise from the investments, would be taxed in the children’s hands. However, if the investment (such as Canada Savings Bonds) results in income including interest and/or dividends, this income will be taxed in your hands.
5. Consider a hygiene or technical service corporation, which effectively taxes profits from your hygiene or technical service business at 20%.
6 Consider purchasing any major items, such as equipment, just before your year-end. This will enable you to get a tax deduction this year, instead of next year.
7. Consider selling rental properties, which have dropped in value, to a family member. This will enable you to trigger a terminal loss, which you can use to reduce taxable income, including income from your practice.
8. Consider selling stocks, which have dropped in value, in order to create a capital loss. These capital losses can be used to offset capital gains reported in the three years prior to the loss, or can be carried forward indefinitely and used to offset future capital gains.
9. Consider buying insurance to pay your tax bill upon death.
10. The lease term for your premises will affect the amount of allowable tax deduction in respect of renovation costs.