Corporate tax planning involves understanding and utilizing the various tax laws and regulations to minimize tax liability.
Planning ahead for taxes also means keeping an eye on new provisions that could benefit your business while monitoring the tax rules and regulations as they can change. To make sure that your company is utilising the tax breaks available, it’s crucial to consult with a tax expert.
Here are some important things to know about corporate tax planning in Alberta:
1. Corporate income tax rate
Federal and provincial corporate income taxes are levied against corporations in Alberta. Currently, Alberta’s corporate income tax is 8%, compared to the federal rate of 15% .An Alberta business would pay the federal corporate tax rate of 15% on their taxable income, in addition to the provincial corporate income tax rate of 8% which was implemented by the recent Job Creation Tax Cut policy. So, the total corporate income tax rate for an Alberta business would be 23%. It’s important to note that Alberta business may also qualify for additional tax credit and deductions, which could lower their overall effective tax rate. This indicates that Alberta’s business income tax rate is 23% when federal and provincial taxes are combined. Corporations may also be subject to other taxes, such as payroll taxes and sales taxes.
2. Capital gains
Canada taxes capital gains at a lower rate than it taxes other types of income. Currently, the federal capital gains tax rate is equal to 50% of the standard federal corporate income tax rate, which makes the federal capital gains tax rate 7.5%. The provincial capital gains tax rate varies from province to province – it is currently 6% in Alberta.
As a result, Alberta’s combined federal and provincial capital gains tax rate is 13.5%.
Remember – the capital gain is only reflected in the taxable income to the extent of 50%. Thus, only $50,000 of a corporation’s $100,000 capital gain is taxed.
3. Scientific Research and Experimental Development (SR&ED) tax credit
SR&ED is a federal tax incentive program that promotes research and development (R&D). For businesses that engage in SR&ED, the programme offers tax credits as tax incentives.
Businesses in Alberta can claim a refundable SR&ED tax credit of up to 20% of qualifying SR&ED costs. This means that a corporation doing SR&ED may claim a refundable tax credit equal to 20% of the qualified expenses it incurred. If the credit is greater than the taxes owed, the excess goes back to the corporation. The credit can be utilized to lower the corporation’s tax obligations.
A variety of R&D activities, such as basic research, applied research, and experimental development, are supported by the SR&ED programme. Wages, supplies, and some overhead costs are examples of eligible expenses.
All corporations, regardless of size or industry, are eligible for the programme. However, the borrowing rate may differ for small business corporations and private corporations under Canadian management (CCPC).
Important note – this credit cannot be transferred and can only be used by the entity that paid the qualifying costs.
4. Investment Tax Credit (ITC)
Businesses in Alberta can claim a 10% non-refundable Investment Tax Credit (ITC) on specific qualified capital assets. This means that a corporation may claim a non-refundable tax credit equal to 10% of the costs it incurred to purchase particular categories of qualifying capital property. The credit has the potential to lower the corporation’s tax obligations. Any unused portion of the credit, however, cannot be given back to the company.
The following types of capital assets are eligible for this credit:
- machinery and equipment for manufacturing and processing
- Equipment for experimental development and scientific research
- Hardware and software for computers
- construction projects and leasehold upgrades pertaining to manufacturing and processing
- Clean energy technology
5. Keep good records
To ensure compliance with tax rules and regulations, businesses should maintain reliable records of all financial transactions.
Some tips that we share with our clients include:
- Keep any original invoices and receipts for expenses that you intend to deduct from your income.
- Sort your records according to tax years and save them securely.
- Keep thorough records of all business-related mileage, travel, entertainment, and donation costs
- The cost of the property, the date of acquisition, and any improvements done to the property should all be noted in any capital cost allowance (CCA) claims you submit.
- Keep track of all costs associated with running your home office, such as the cost of heating, energy, and insurance, as well as the space used for business.
6. Be aware of the deadlines
Deadlines may change over time, and it’s always best to check with the Canada Revenue Agency or a tax professional to confirm the most recent deadlines.
- Corporation Income Tax: A corporate income tax return must be filed no later than six months following the conclusion of the corporation’s tax year. A corporation with a December 31 year-end, for instance, would have until June 30 of the following year to file its tax return.
- GST/HST: If your corporation is registered for GST/HST, you have one month from the end of the reporting period to file your GST/HST return. Depending on the GST/HST remittance choices made by your corporation, the reporting period may be monthly, quarterly, or annual.
- Payroll deductions: If your firm employs people, the 15th of the month after the pay period is the deadline for submitting payroll deductions to the Canada Revenue Agency (CRA), such as income tax, CPP payments, and employment insurance premiums.
- Payments in installments: Your firm may be compelled to make payments in installments to the CRA throughout the year if there is a balance owed on its tax return. The 3rd, 6th, 9th, and 12th months of the corporation’s fiscal year each have a 15-day payment due date.
- Tax Filing Extension: Your firm may request a tax filing extension if it is unable to submit its tax return by the due date. However, it must be requested prior to the initial filing deadline, and any unpaid taxes must be paid on or before the deadline.
Tax laws and regulations are subject to change and it’s crucial to stay up to date with any changes. Additionally, it is important to work with a professional tax advisor like the team at Liu & Associates to ensure that your corporate tax planning is in compliance with the laws and regulations and to identify potential tax savings.