Here are three key strategies to consider when conducting year-end tax planning for your business in 2021.
1. Consider government COVID-19 relief programs
While CEWS and CERS recently ended, there are other pandemic-relief programs that your business may benefit from.
- Canada Recovery Hiring Program (CRHP)
- Tourism and Hospitality Recovery Program
- Hardest-Hit Business Recovery Program; and
- Support across all sectors in the event of a public health lockdown.
2. Plan your asset purchases and disposals
Immediate expense: The government has confirmed it will move forward with a plan to allow Canadian-controlled private corporations to immediately expense up to $1.5 million of eligible property in each year from 2021 to 2023.
If you’re planning to purchase depreciable assets for use in your business in the near future, consider doing so before the end of your fiscal year to maximize the benefit of the annual $1.5 million limit, as no carryforward is available.
Purchases of certain zero-emission vehicles and off-road zero-emission vehicles and equipment made during the year that become available for use before 2028 are also eligible for enhanced first-year CCA. For eligible vehicles that are available for use before 2024, the rules allow for full write-off in the first year.
Delay your sale: If you plan to sell capital assets with accrued gains, consider delaying the sale until 2022 (or the start of your business’s next fiscal year). This will allow your business to claim one additional year of CCA and will also postpone the inclusion of any recaptured CCA and capital gains in taxable income by one year.
3. Pay your family wisely
Business owners know the value of revisiting your family business remuneration strategy at least annually. In determining the best mix of salaries and dividends for you and your family members, consider factors such as each individual’s marginal tax rate and need for cash, as well as the corporation’s tax rate and the benefits of tax deferral.
The TOSI rules don’t apply to wages paid for actual work performed. If your spouse or children work for your business, consider paying them salaries for their work in 2021, remembering that salaries must be reasonable and commensurate with the services performed. A good rule of thumb is to pay them what you would have paid a third party and to maintain.
Also, remember that payment of salaries and bonuses accrued in your 2021 fiscal year must be made within 179 days of your business’s year end for the amounts to be deductible in the current fiscal year.
The above list is far from a complete list of issues to be aware of as your fiscal year-end approaches. Amid the ongoing challenges of the pandemic, tax planning may not be top of mind for many business owners, but it’s more important than ever to plan ahead for income taxes to avoid any unpleasant surprises later on. Be sure to reach out to your trusted advisor for your tax planning help.
Scott Conner is an experienced tax practitioner and practical problem solver at BDO. As a partner specializing in Canadian income tax, Scott has particular specialties in private companies, planning for estates, trusts, and complex transactions. Scott works closely with his clients to understand their specific needs and adjust strategies accordingly. Scott and his team take a proactive, hands-on approach. They closely follow existing and proposed legislation to determine how it will affect individual financial goals, and provide ongoing guidance.