How family businesses can keep more money

How family businesses can keep more of their hard-earned money

Originally published in the Mississauga Board of Trade magazine.

Whether you own a start-up or a third-generation company you’ve probably invested plenty of hard work, not to mention financial risk. Naturally, business owners are keen to utilize any tax-saving strategies available to maximize take-home profits.  Here are five things you can do throughout the year to keep more of your hard-earned dollars. 

Maximize deductions. Minimize your tax bill by maximizing deductions. These could include home office expenses – a portion of mortgage interest payments, insurance, utilities and repairs – car, meals/entertainment, and depreciation on capital assets. Keep a firm handle on all of your receipts and expenses for business-related goods and services. Organize email receipts into a specific folder or use smartphone apps to store and import paper receipts into accounting software.

Make your spouse and adult children shareholders.  For incorporated businesses, another form of income splitting is making family members shareholders and providing them with dividends. This will spread the business profits among those with a lower taxable income, reducing the overall tax paid.  As shareholders, capital gains may also be split amongst family members should the business be sold.  Be aware, however, that the CRA has recently adopted new and complex rules around this type of income splitting.  A tax professional can determine whether these new rules apply to your situation.

Time the disposal of old equipment. An old rule of thumb is to never dispose of equipment towards the end of the fiscal year as no depreciation can be claimed for the year.  The beginning of the fiscal year is the best time to dispose of the equipment and if you happen to have a gain, you can defer the tax by one year.

Don’t miss out on tax credits. If your business is in the trades and has apprentices, you may be able to claim the Apprenticeship Training Tax Credit. Employers who hire co-op students from an Ontario college or university can claim the Co-operative Education Tax Credit. Certain tax credits vary by province, so it’s worthwhile to understand the different credits available both at the federal and provincial levels.

Pay bonuses directly to RRSP. Family members who are employees may also receive tax benefits by contributing a bonus directly into their RRSP. You’ll avoid tax withholding, and the full amount can be used as a deduction provided the family member has reached the CPP/EI threshold. 

Since each family business is unique, contact your accountant to determine which strategies are right for you.