As we edge closer to the end of 2023, it’s crucial for businesses to stay informed about tax planning strategies. This year has brought several changes and opportunities in the realm of tax planning, including adjustments in deadlines, new legislative measures, and strategic considerations for managing tax liabilities.
1. Invest in Capital Assets
With 2024 on the horizon, businesses should consider accelerating their purchases of depreciable assets. This move is particularly advantageous due to the temporary tax incentives set to be phased out next year.
- Canadian-Controlled Private Corporations (CCPCs): These can leverage a full immediate tax deduction for certain assets, up to a limit of $1.5 million within an associated group of companies, if they are available for use before January 1, 2024.
- Individuals and Canadian Partnerships: Immediate expensing measures extend to assets acquired before January 1, 2025.
2. Salaries, Dividends or a last minute Capital Gain Strip
Determining the ideal mix of salary or dividend remuneration is a nuanced decision. This year also marks the end of a transaction which is normally referred to as a capital gain strip. Factors to consider include cash needs, tax rates, and corporate attributes. Remember, if opting for salaries, any accrued amounts, including bonuses, should be paid within 179 days of the year-end.
3. Shareholder Loans
If you have an outstanding loan from your corporation, it’s advisable to repay it within 12 months from the end of the corporation’s tax year to avoid it becoming personal income. Discuss with a tax advisor if you have issues with meeting the repayment deadline. A capital gain strip may resolve your problem.
4. Timely Tax Payments
Punctual tax payments are more critical than ever, especially with the increase in CRA interest rates. For corporations, the deadline is two months post year-end (three months for some CCPCs).
5. Plan Ahead
End-of-year discussions are not just about reflecting on the past year but also preparing for the future. Whether it’s contemplating a business sale or transitioning the business to family members, planning ahead is vital. Notably, proposed tax rules on intergenerational business transfers set to take effect in 2024 could significantly impact future planning.
Effective tax planning requires a proactive approach, especially with the imminent changes and opportunities in the current tax landscape. As a business owner, it’s essential to stay informed and seek professional advice to navigate the complexities of tax planning effectively. Remember, the decisions you make today can have significant implications for your financial future.