These claimable expenses include:
home mortgage interest
property taxes
home insurance
utilities
business phone
landscaping costs
The claimable percentage of these expenses is based on your dedicated home office space divided by the total square footage of your liveable home area space.
Wednesday, April 25, 2007
Thursday, April 19, 2007
Testamentary Trust Planning
This type of trust (testamentary: included in the will) is very useful for a family with young children. The survivors benefit from this in future tax savings. The tax savings result from the trust earnings being taxed in the child's hands. Since the children make little or no income, no taxes are incurred.
Here's an example of how this testamentary trust works: When the insured dies, his/her life insurance proceeds are transferred into this trust, with the remaining property going to the surviving spouse.
In the trust documentation, it is indicated that the beneficiaries are the children and spouse, the spouse is also the trustee. The spouse is now able to spend the trust money in the interests of the children. These expenditures such as camps, computer purchases, and any other purchase that aids in the progress or enrichment of the children's life are eligible.
Here's an example of how this testamentary trust works: When the insured dies, his/her life insurance proceeds are transferred into this trust, with the remaining property going to the surviving spouse.
In the trust documentation, it is indicated that the beneficiaries are the children and spouse, the spouse is also the trustee. The spouse is now able to spend the trust money in the interests of the children. These expenditures such as camps, computer purchases, and any other purchase that aids in the progress or enrichment of the children's life are eligible.
Sunday, April 15, 2007
Reasons to Incorporate Your Business:
1)Qualified Small Business Exemption: If the owner of this business ultimately sells the shares of the business, they may qualify for up to a $750,00 lifetime capital gains exemption. There are 4 criteria that need to be met to qualify for this tax-free capital gain. See February blog notes for these 4 rules.
2) Income splitting: You may pay a reasonable salary, and /or bonus and to your family members. This compensation is for the services they have provided to the business.
It's best to document a list of each person's responsibilities performed within the business.
The 'reasonableness' test does not apply to dividends paid. This means that the owner of the business can pay any amount of dividend to a shareholder who doesn't provide any services to the company.
3)Tax deferral opportunities: such as,
a) if your company's year-end is established between July 1 and Dec. 31, employee bonuses payable can be paid up to 180 days, resulting in the individual declaring his/her bonus in the next calendar year and
b) retaining income within the company when not needed personally. This would save you an amount that you would have otherwise paid in personal taxes owing, had this amount been withdrawn and declared personally.
4) Private Health Services Plan (PHSP): This plan recognized by CRA under bulletin IT-339R2 was introduced as a cost efficient and tax effective means of providing health and dental benefits for small and medium sized businesses. This plan is an inexpensive way for incorporated employers and sole proprietors to provide tax free health and dental services for themselves and their dependents, their employees and their dependents. These services are 100% tax deductible to the corporation or the sole proprietor, but not taxable as benefits to the individuals.
We (Elliott & Company CMAs, http://www.ellco.ca/) have an alliance with a Benefit Plan company that offers our clients a special rate due to the referrals that we are providing to this company. If you are currently under a plan (i.e. Shield, London Life, etc.), this alliance will waive the $150 one-time sign up fee. If you are not with an existing plan, your sign up fee will be reduced to $75. A 5% admin fee will be charged, rather than the 10% admin fee that you may be used to for medical/dental claims put through your plan. Those of you that are sole proprietors, you should talk to our associate company about eligibility. If you have employees, you may still be able to use this.
5) Universal Life Insurance: This allows for tax-sheltered growth of the company's retained earnings. One condition is that the premiums of this policy are not deductible within the company. The owner can use these insurance funds for his/her business or personal needs, if a collateral policy is arranged through bank loans. Appropriate documentation and steps need to be taken to ensure that these funds used for personally aren't later deemed from CRA as a personal benefit.
6) Corporate limited liability.
7) Corporate image presence.
COSTS: Being incorporated does come with other costs such as: incorporation fees, annual corporate tax return preparation and financial statement preparation (Elliott & Company CMAs: http://www.ellco.ca/ year-end (notice-to-reader) cost ranges between $500-$800/year).
Also, you may have no choice but to incorporate, if the companies you contract to require you to do so for liability purposes.
2) Income splitting: You may pay a reasonable salary, and /or bonus and to your family members. This compensation is for the services they have provided to the business.
It's best to document a list of each person's responsibilities performed within the business.
The 'reasonableness' test does not apply to dividends paid. This means that the owner of the business can pay any amount of dividend to a shareholder who doesn't provide any services to the company.
3)Tax deferral opportunities: such as,
a) if your company's year-end is established between July 1 and Dec. 31, employee bonuses payable can be paid up to 180 days, resulting in the individual declaring his/her bonus in the next calendar year and
b) retaining income within the company when not needed personally. This would save you an amount that you would have otherwise paid in personal taxes owing, had this amount been withdrawn and declared personally.
4) Private Health Services Plan (PHSP): This plan recognized by CRA under bulletin IT-339R2 was introduced as a cost efficient and tax effective means of providing health and dental benefits for small and medium sized businesses. This plan is an inexpensive way for incorporated employers and sole proprietors to provide tax free health and dental services for themselves and their dependents, their employees and their dependents. These services are 100% tax deductible to the corporation or the sole proprietor, but not taxable as benefits to the individuals.
We (Elliott & Company CMAs, http://www.ellco.ca/) have an alliance with a Benefit Plan company that offers our clients a special rate due to the referrals that we are providing to this company. If you are currently under a plan (i.e. Shield, London Life, etc.), this alliance will waive the $150 one-time sign up fee. If you are not with an existing plan, your sign up fee will be reduced to $75. A 5% admin fee will be charged, rather than the 10% admin fee that you may be used to for medical/dental claims put through your plan. Those of you that are sole proprietors, you should talk to our associate company about eligibility. If you have employees, you may still be able to use this.
5) Universal Life Insurance: This allows for tax-sheltered growth of the company's retained earnings. One condition is that the premiums of this policy are not deductible within the company. The owner can use these insurance funds for his/her business or personal needs, if a collateral policy is arranged through bank loans. Appropriate documentation and steps need to be taken to ensure that these funds used for personally aren't later deemed from CRA as a personal benefit.
6) Corporate limited liability.
7) Corporate image presence.
COSTS: Being incorporated does come with other costs such as: incorporation fees, annual corporate tax return preparation and financial statement preparation (Elliott & Company CMAs: http://www.ellco.ca/ year-end (notice-to-reader) cost ranges between $500-$800/year).
Also, you may have no choice but to incorporate, if the companies you contract to require you to do so for liability purposes.
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