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By: Adrian Mastracci
North Shore News
Business Section, “Loose Change”
Wednesday, September 14, 2003
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. Perhaps, a little
refresher or second opinions will assist.
Tax considerations are always secondary to
the investment or business reason for undertaking
a project. 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. Scrutinize and
dig deep into what you are doing in light of
your goals.
Reflect on your progress and what has been
implemented. 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.
Take a few moments to reflect upon your prospects
of the 2003 taxable events. Retrieve last year’s
results, along with the forecasted ones, and
use the numbers as guides for this year.
Here is the 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 and 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. 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. That brainstorm
with your professional advisors may provide
more value than you think.
Business ventures, especially small businesses,
are the backbone of the economy. Paying special
attention to tweaking the tax stuff is like
getting a bigger dividend. Happy tweaking!
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