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| Adrian Mastracci, president
of KCM Wealth Management, says “Start
by assessing the future prospects, analyze
the present strategy and then adopt the appropriate
changes to improve your fortunes. That brainstorm
with your professional advisors may provide
more value than you think." |
For Immediate Release
Vancouver, BC (October
10, 2003): In Part
1, we dealt with the tax tweaks that may
apply to individuals as the end of 2003 draws
near.
Adrian Mastracci, investment counsel & financial
advisor with Vancouver based KCM
Wealth Management comments, “As individuals, we are conditioned
to deal with our tax matters as the end of
each year draws near. Similarly, a periodic
review of the business tax tidbits is about
ensuring that the action plan is on target.
Many businesses, large and small, private
and public, incorporated and not, have fiscal
periods that coincide with the calendar year
end.”
“Some business plans may have suffered
amid the fears and uncertainties of the past
three years,” notes Mastracci, “Perhaps,
a little refresher or second opinions will
assist.”
“Tax considerations are always secondary
to the investment or business reason for
undertaking a project,” observes Mastracci, “However,
a review of the tax aspects can make for
an easier business life.”
“Therefore, what better way than to
examine the taxable events of the business
in anticipation of the next fiscal year end,” remarks
Mastracci, “Scrutinize and dig deep
into what you are doing in light of your
goals.”
“Reflect on your progress and what
has been implemented,” states Mastracci, “If
the foundation of the tax plan is appropriate,
a periodic tweak will keep you on track.”
“Focusing on policies and strategies
translates into better business decisions.
Results more in keeping with expectations
may also be achieved,” adds Mastracci.
“Take a few moments to reflect upon
your prospects of the 2003 taxable events,” points
out Mastracci, “Retrieve last year’s
results, along with the forecasted ones,
and use the numbers as guides for this year.”
Mastracci provides a summary of important
tasks that may render tax implications in
this fiscal period and beyond:
The Big Picture
- Revisit the business plan to ensure
it is on target with your expectations.
- Prepare your vision for the business
succession. It is definitely rated a “best
investment”.
- Dust off the business marketing plan
for new approaches and ideas.
- Examine the small business corporate
tax rate on the first $225,000 of active
income.
This rises to $250,000 for calendar 2004.
- Review this year’s prospects
for capital gains and losses. The application
of business and capital losses carried
forward
from previous years may also apply.
- Consider the need to purchase depreciable
assets before the fiscal year end, and
the wisdom of delaying a disposition until
after
the year-end.
- Analyze if crystallization of your
business or operating farm qualifies for
the $500,000
capital gain exemption. Full use means
tax savings of $112,500 at the 45% tax
rate.
- Review the relaxed capital gains deferral
rules if you sell your business and buy
another qualifying one.
- Determine if estate freeze provisions
are appropriate for your circumstances.
- Gauge the suitability of the corporate
share structure and changes necessary
to enhance your business.
- Check out the US filings that may be
required if you earn business income in
the USA, either
personally or through a corporation.
Remuneration Mix
- Investigate the dividend policy appropriate
for your business.
- Review your personal remuneration mix,
and that of family members. A salary
and bonus combination totaling $86,100
for 2003
creates the maximum $15,500 RRSP room
for 2004.
- Consider if accruing salaries and/or
bonuses at year-end is beneficial.
- Review the suitability of the stock
purchase and stock option plan, or starting
one.
- Ensure that a current shareholder loan
will not be included in your income as
you approach the second fiscal year end
since
it was issued.
- Assess the prospects of obtaining a
loan from your company. The prescribed
rate is
3% to December 31, 2003.
Retirement Income Streams
- Determine if the employer sponsored
pension plan is suitable for the organization
and
if it is funded appropriately.
- Inquire about the need for a Supplemental
Employee Retirement Plan (SERP).
- Assess the value of an Individual Pension
Plan (IPP) and/or a Retirement Compensation
Arrangement (RCA).
- Check if a Deferred Profit Sharing
Plan (DPSP) is appropriate for non-shareholder
managers.
- Review the retiring allowance provisions
for when that golden day presents itself.
The Operational Stuff
- Review your game plan to repay outstanding
debts. Ensure that money borrowed stays
within manageable bounds and can be serviced,
even
during difficult periods.
- Get acquainted with the recent interest
deductibility proposals from the tax
authorities. For example, borrowing strategy
to pay dividends
or make loans to employees may need revisiting.
- Investigate the insurance coverages
relating to property, liability and keyman
policies.
- Do not claim depreciation on your principal
residence if business is conducted from
your home.
- Employers can provide non-cash gifts
to employees up to $500 per year. The gift
is
not taxable to the employee and the cost
is deductible to the employer.
- Evaluate whether incorporation of the
business is beneficial.
For the Owner-Managers
- Assess the need for personal disability
coverage. This is typically the biggest
risk for self-employed individuals.
- Investigate the possibility of claiming
an Allowable Business Investment Loss
(ABIL) for a project gone sour.
- Scrutinize whether self-employment
is still appropriate for you.
- Develop your retirement exit strategy
from the business life, be it gradual
or by a target date.
Quest for Continued Education & New
Ideas
- Attend courses, presentations and conventions
on important topics for your business
or industry.
- Stay abreast of the periodic corporate
income tax changes and how they might
affect you.
- Engage a professional, say the accountant,
solicitor or investment advisor, for
the initial consultation to explore what
may
be of benefit to your business.
- Bring all your professional advisors
together for an all encompassing strategy
session
or two.
- Keep up the professional development
typically available from your industry
or trade associations.
- Make it a practice to have a periodic
get-together with your industry peers.
- Subscribe to the relevant newsletters
available from your professional advisors.
“Operating a business means that you
will need to consider two facets,” suggests
Mastracci, “First, the business aspects.
Then, how you and your family relate to the
organization.”
“Start by assessing the future prospects,
analyze the present strategy and then adopt
the appropriate changes to improve your fortunes,” concludes
Mastracci, “That brainstorm with your
professional advisors may provide more value
than you think.”
“Business enterprises, especially
small businesses, are the backbone of the
economy,” summarizes Mastracci, “Paying
special attention to tweaking the tax stuff
is like getting a bigger dividend.”
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