What is a Bare Trust and Why Is It Useful?

Are you curious about how bare trusts work?

Bare trusts might sound complex, but they’re actually straightforward legal arrangements that offer significant benefits.

Unlike other types of trusts, bare trusts are characterized by their simplicity and clear definition of roles.

This simplicity offers several benefits, including privacy, flexibility in asset management, reduced probate fees, and opportunities for tax planning.

This makes bare trusts an attractive option for individuals seeking efficient wealth transfer and estate planning solutions.

What is a Bare Trust?

A bare trust is a straightforward legal arrangement where a trustee holds the legal title to assets, but the beneficiary retains absolute control over them.

Think of the trustee as the wallet holder, the one who technically owns the wallet and its contents. The beneficiary, on the other hand, decides how to use the money inside the wallet.

This is how a bare trust works, with the trustee holding legal ownership and the beneficiary enjoying full control and benefits of the assets.

Bare trusts stand out because they are simple and offer a straightforward solution for managing assets.

How Does a Bare Trust Work?

A bare trust operates on a simple premise: the trustee holds legal title, while the beneficiary enjoys full control and benefits.

This straightforward structure offers privacy, asset management flexibility, and tax planning advantages, making bare trusts an appealing option for efficient wealth transfer and estate planning.

Here’s how a bare trust works:

The Trustee

In a bare trust, the trustee plays a crucial role. This individual or entity holds legal ownership of the assets within the trust.

However, unlike other types of trusts, where trustees often have discretionary powers or obligations to manage the assets, their role is primarily administrative in a bare trust.

The trustee’s duty is to manage the assets according to the beneficiary’s instructions, essentially acting as a custodian of the assets.

Beneficiary

The beneficiary of a bare trust enjoys a unique position. Despite not holding legal title to the assets, they have complete control and entitlement over them.

This means they can use, manage, and benefit from the assets as they see fit, without interference from the trustee.

Whether it’s accessing funds, making investments, or directing the trustee on asset management, the beneficiary has autonomy within the confines of the trust arrangement.

Setting Up a Bare Trust

Establishing a bare trust involves straightforward steps:

  • Appoint a Trustee: Choose an individual or entity to hold legal ownership of the assets within the trust.
  • Designate Beneficiaries: Specify who will have control and benefit from the assets held in the trust.
  • Draft a Trust Deed: Create a legal document outlining the terms and conditions of the trust arrangement.
  • Transfer Assets: Move the assets you wish to include in the trust into the trust’s name, formally establishing the trust arrangement.
  • Ensure Compliance: Ensure that the trust is set up in accordance with relevant laws and regulations.
  • Record Keeping: Maintain accurate records of trust activities, transactions, and communications between trustees and beneficiaries.
  • Regular Reviews: Periodically review the trust’s performance, beneficiaries’ needs, and any changes in applicable laws to ensure the trust remains effective and compliant.

Setting up a bare trust involves appointing a trustee, designating beneficiaries, transferring assets, and drafting a trust deed to establish the arrangement.

Ensuring compliance, maintaining records, and conducting regular reviews are essential steps to maintain the trust’s effectiveness and adherence to legal requirements.

Why Use a Bare Trust?

Having a bare trust offers many benefits, from secure asset management to reducing tax liabilities. Here are some of the reasons individuals opt to use a bare trust:

Privacy

Bare trusts offer a high level of privacy since legal ownership of assets is held by the trustee, shielding them from public disclosure.

This confidentiality can be advantageous for individuals seeking to protect their wealth and financial affairs from scrutiny.

Asset Management

Bare trusts provide a secure means of asset management for minors or individuals who are unable or unwilling to manage their assets directly.

The trustee holds legal title to the assets but must follow the beneficiary’s instructions, ensuring efficient management in accordance with their wishes.

Reduced Probate Fees

Assets held within a bare trust typically bypass the probate process upon the beneficiary’s death.

As a result, probate fees, which can be substantial, are minimized or eliminated altogether, saving beneficiaries and their heirs time and money.

Tax Planning

Bare trusts offer valuable opportunities for tax planning and mitigation.

By transferring assets into a bare trust, individuals can potentially reduce their tax liabilities, optimize their estate planning strategies, and ensure the efficient transfer of wealth to future generations.

Things to Consider with Bare Trusts

While bare trusts are simple and advantageous, there are factors that should be taken into consideration before setting one up:

The Benefits of a Bare Trust

Bare trusts offer a level of flexibility that can adapt to changing circumstances.

Unlike other trust structures that may impose restrictions or conditions, bare trusts allow beneficiaries unrestricted access to assets, empowering them to make financial decisions aligned with their evolving needs and goals.

Bare trusts can also serve as a valuable tool for succession planning, enabling individuals to pass on their wealth seamlessly while maintaining control over how their assets are distributed.

When to Use a Bare Trust

Bare trusts are ideal in various situations, such as when individuals wish to provide for their children’s or grandchildren’s future financial security.

By establishing a bare trust, parents can ensure that their children inherit assets responsibly once they reach adulthood, avoiding potential mismanagement or misuse.

Bare trusts are advantageous for individuals seeking to protect assets from potential creditors or legal disputes, as the assets held within the trust are generally shielded from such claims.

CRA Changes 

Recent changes by the Canada Revenue Agency (CRA) have highlighted the importance of proactively managing bare trusts to remain compliant with tax laws.

These changes may impact tax planning strategies associated with bare trusts, necessitating a thorough review of existing trust arrangements to ensure they align with current regulations.

Failure to address these changes could result in unintended tax consequences or penalties, underscoring the need for ongoing monitoring and adjustment as necessary.

Seeking Professional Help

Given the intricacies involved in establishing and managing bare trusts, seeking professional assistance is essential to effectively navigate potential pitfalls.

Legal and financial professionals with expertise in trust law, such as Liu & Associates, can offer invaluable guidance tailored to an individual’s specific circumstances and objectives.

From structuring the trust to ongoing administration and compliance, working with experienced professionals ensures that bare trusts serve their intended purposes while minimizing risks and maximizing benefits for all parties involved.

Proactive Estate Planning With Liu & Associates

A bare trust is a straightforward yet powerful legal tool for asset management and estate planning.

Contact Liu & Associates today to explore how a bare trust can benefit you and your family.

Our experienced team can help you navigate the complexities of bare trusts and implement strategies to optimize your financial security and legacy.

Partner with us today and experience the peace of mind that comes with proactive estate planning and asset protection.

What Is The Penalty For Filing Corporate Taxes Late in Canada?

Businesswoman Analyzing Taxes With Magnifying Glass

Late filing of corporate taxes in Canada can have serious consequences for businesses.

Understanding the penalties and taking proactive measures to avoid them is crucial for maintaining compliance and financial stability.

Here are the repercussions of late corporate tax filing, the associated penalties, and strategies to prevent this from happening:

Why You Shouldn’t File Taxes Late In Canada

Late filing of corporate taxes in Canada can have far-reaching consequences for businesses. Here are some reasons why filing on time is important:

Penalties

The Canada Revenue Agency (CRA) imposes penalties for late filing, and these penalties can be substantial. They are typically fixed amounts that increase based on the corporation’s size and the frequency of late filing within a specified period.

Interest Charges

In addition to penalties, businesses may incur interest charges on any outstanding tax balances resulting from late filing. These interest charges can accumulate over time, significantly increasing the company’s overall financial burden.

Loss of Trust

Late filing of corporate taxes can affect trust with stakeholders, including investors, creditors, and business partners. It can signal a lack of organizational discipline and responsibility. This can potentially damage business relationships and reputations in the long term.

Paying the Penalty

Businesses should be aware of both the fixed and percentage-based penalties associated with late corporate tax filing in Canada. Understanding the nature of these penalties is crucial for businesses to assess the potential consequences of non-compliance.

Here are the two main types of penalties businesses may face:

Fixed Penalties

The CRA imposes fixed penalties for late filing, which vary depending on the corporation’s size and the frequency of late filings within a specified period.

These penalties are typically set amounts that are applied per occurrence of late filing. The exact penalty amounts may differ based on the specific circumstances of each case.

Percentage-Based Penalties

In addition to fixed penalties, businesses may also incur percentage-based penalties on the outstanding tax balance for each month the return is late, up to a maximum of 12 months.

These penalties are calculated as a percentage of the unpaid tax amount and can accumulate over time, significantly increasing the company’s overall financial burden.

How to Prevent Filing Late

Avoiding the pitfalls of late corporate tax filing requires proactive measures and careful planning. Here are some effective strategies to ensure timely tax compliance:

Organized Records

Maintaining accurate and organized financial records throughout the year is essential for a smooth tax filing process.

Here are some tips to keep your records in order:

  • Categorize expenses: Keep expenses categorized and well-documented to facilitate easy retrieval during tax preparation.
  • Regular reconciliations: Conduct regular reconciliations of bank statements, invoices, and receipts to ensure the accuracy and completeness of financial data.
  • Archive documents: Store all relevant financial documents, such as receipts and invoices, in a secure and easily accessible location for future reference.

By tracking income, expenses, and relevant documents, businesses can streamline the preparation of tax returns and minimize the risk of delays or errors.

Setting Reminders

Establish internal deadlines and set up reminders for key tax filing dates. This can help ensure that the task is not overlooked or left until the last minute.

Whether through calendar alerts, task management systems, or regular meetings, a system for tracking deadlines can help prioritize tax obligations and avoid procrastination.

Professional Assistance

Seeking the guidance of experienced tax professionals can provide invaluable support in navigating the complexities of corporate tax regulations.

Tax experts can offer insights into relevant tax laws, identify potential deductions or credits, and ensure compliance with filing requirements.

Corporate tax planning services may include:

  • Tax compliance: Making sure that the company complies with all relevant tax regulations and laws, including filing deadlines and reporting requirements.
  • Tax optimization: Identifying opportunities to minimize tax liabilities through strategic tax planning strategies, such as deductions, credits, and exemptions.
  • Risk management: Assessing potential tax risks and implementing measures to mitigate them, such as addressing tax audit concerns and compliance issues.
  • Financial analysis: Conducting a comprehensive analysis of the company’s financial situation to identify areas for improvement and optimize tax outcomes.
  • Tax advisory: Providing expert guidance and advice on various tax-related matters, including mergers and acquisitions, corporate restructuring, and international tax planning.

With their expertise, businesses can mitigate the risk of errors and delays while optimizing their tax position.

Two Edmonton business owners

Contact Liu & Associates

By understanding the penalties for late corporate tax filing in Canada and implementing proactive measures to prevent such occurrences, businesses can safeguard their financial interests and maintain compliance with regulatory requirements.

At Liu & Associates, we specialize in providing comprehensive tax services tailored to the needs of businesses across Canada.

Our team of dedicated professionals is committed to assisting clients in fulfilling their tax obligations efficiently and effectively.

Contact us today to learn more about how we can help you with your corporate tax filing needs.

Do I Need An Accountant To File Corporate Tax?

Filing corporate taxes in Canada is a crucial responsibility for businesses, with deadlines that vary depending on the type of corporation.

Typically, corporations are required to file their taxes within six months after the end of their fiscal year.

These deadlines are not flexible, and failure to meet them can result in penalties and legal consequences.

Therefore, understanding the process of corporate tax planning and ensuring compliance is essential for every corporation operating in Canada.

Corporate Taxes Must Be Filed

Regardless of the route you choose—whether opting for the expertise of a professional corporate accountant or doing it on your own—filing corporate taxes remains an imperative responsibility for businesses.

Failure to comply can lead to penalties and legal ramifications.

Here are some of the guidelines your business must follow when it comes to filing corporate taxes:

Understanding Tax Obligations

Businesses that operate in Canada are subject to tax laws governed by the Canada Revenue Agency (CRA).

It is essential for businesses and corporations to understand their tax obligations, including the preparation and submission of accurate financial statements.

These statements determine the business’s taxable income and ensure compliance with the tax regulation enforced by the CRA.

Requirements to File Tax Returns

Businesses are required to file their tax returns annually, regardless of their profitability or financial status.

The submission of tax returns is mandatory, and failure to comply with this requirement can result in penalties imposed by the CRA.

Understanding the specific deadlines set by the CRA is important, as businesses must ensure that their tax returns are filed on time to avoid potential penalties and legal consequences.

Due Date for Business Tax Filing

The due date for filing corporate tax returns varies depending on the business’s fiscal year-end. Typically, businesses must file their tax returns within six months after the end of their fiscal year.

It is imperative for businesses to adhere to these deadlines and submit their tax returns promptly to avoid penalties and interest.

By staying on top of your business’s tax due dates, you can effectively plan and manage your tax obligations while maintaining compliance with the CRA.

Or, you can have a professional accountant handle your tax preparations and save your business money.

An Accountant Can Save You Money

Partnering with a professional corporate accountant, such as Liu & Associates, can yield substantial benefits.

With years of experience in the field, firms like Liu understand the intricacies of tax law, ensuring that all applicable deductions and credits are leveraged to minimize tax liabilities.

Their expertise can ultimately result in significant savings for your business.

Expertise in Tax Law

Chartered professional accountants have a deep understanding of the complexities of tax laws and regulations. Their specialized training and experience enable them to handle the intricacies of tax code and law effectively.

By staying ahead of the latest updates and changes in tax legislation, accountants can identify opportunities for tax deductions, credits, and exemptions that may be overlooked by those without specialized knowledge.

This expertise allows businesses to maximize their tax savings while ensuring compliance with all legal requirements.

Strategic Tax Planning

Beyond mere compliance, a professional corporate accounting firm can offer strategic tax planning services tailored to your business’s unique needs and goals.

They can provide proactive advice on structuring transactions in a tax-efficient way. This can optimize business operations to minimize tax liabilities as well as explore innovative tax-saving strategies.

By taking a proactive approach to corporate tax filing, businesses can manage their tax obligations while maximizing their financial performance and competitiveness.

This guidance can make a significant difference in your business’s bottom line, helping you achieve long-term financial success and sustainability.

Efficient Record Keeping and Documentation

Professional corporate accountants also excel in maintaining accurate and comprehensive financial records and documentation.

Proper record-keeping is essential for demonstrating compliance with tax laws and regulations. It also facilitates the efficient preparation of your corporation’s income tax return.

Accountants can help your business establish robust record-keeping systems and processes, ensuring that all relevant financial information is properly documented and organized.

This meticulous attention to detail not only streamlines the tax filing process but also minimizes the risk of errors or omissions that could lead to costly penalties or audits.

By entrusting your record-keeping needs to experienced professionals, you can maintain financial transparency and integrity while maximizing your tax savings.

woman sitting at home office desk with cup of coffee

Contact Liu & Associates Today and Prepare to Save on Your Corporate Tax Filing

For expert assistance in navigating the complexities of corporate tax filing and maximizing savings, reach out to Liu & Associates today.

With our proven track record and dedication to client satisfaction, you can trust us to handle your tax matters with precision and efficiency.

Contact us today to get started.

5 Ways For Business Owners To Pay Less Tax In Canada

Reducing tax liabilities is a key concern for many business owners in Canada. Knowing how to implement strategic measures can lead to significant corporate tax reductions and savings.

But how exactly can you ease your yearly corporate income tax returns?

Here are five ways for business owners to pay less tax and optimize the corporate tax filing process:

1. Hire a Family Member

One strategy for corporate tax reduction is to hire a family member. This allows you to leverage income-splitting opportunities, a legal and effective way of redistributing income within the family unit.

By hiring family members, business owners can potentially benefit from lower tax brackets applicable to those individuals with lower incomes.

However, it’s important that you adhere to employment standards and ensure that your family members actively contribute to the business.

Overall, strategically hiring family members in the business can help you capitalize on the tax advantages associated with familial income distribution.

  • Strategy: Employ family members for income-splitting opportunities.
  • Benefit: Leverage lower tax brackets for family members with lower incomes.
  • Caution: Ensure family members actively contribute to the business and adhere to employment standards.

2. Incorporate Your Business

Incorporating your business offers a multifaceted approach to both business operations and tax optimization. One of the advantages of doing this is the potential for significant tax savings.

By operating as a corporation, you can gain access to lower tax rates on eligible dividends, helping to decrease your corporate taxes.

Incorporating your business also establishes it as a distinct legal entity, affording you with increased flexibility in managing income and implementing tax-efficient strategies.

This newfound flexibility includes income-splitting with family members, tax deferral mechanisms, and a strategic approach to financial growth.

  • Advantage: Significant tax savings through lower tax rates on eligible dividends.
  • Flexibility: Establishes a distinct legal entity, offering flexibility in income management.
  • Strategic: Enables income splitting, tax deferral, and tax-efficient strategies.

3. Maximize Tax Breaks from RRSPs

For Canadian business owners aiming to mitigate their tax liabilities, using RRSPs (Registered Retirement Savings Plans) can be a powerful and accessible tool.

Contributions to RRSPs offer immediate tax benefits by being tax deductible, providing you with a tangible means of reducing your taxable income.

The tax advantages of RRSPs directly impact the overall financial health of the business. By aligning retirement planning with immediate tax advantages, you can ensure a balanced and tax-efficient future for your business.

  • Approach: Contribute to Registered Retirement Savings Plans (RRSPs).
  • Benefit: Immediate tax benefits through tax-deductible contributions.
  • Dual Impact: Enhances personal retirement planning and contributes to corporate tax reduction.

4. Pay Yourself a Dividend, Not a Salary

An important decision to make as a business owner is how to pay yourself. This can significantly affect both your personal income and corporate tax liabilities.

Choosing dividends over a salary is a strategic move that contributes to overall corporate tax reduction. Dividends are subject to lower tax rates than salaries, allowing you to keep more earnings within the business.

The approach promotes the efficient allocation of financial resources and can help you strike a balance between personal financial needs and corporate growth.

This strategy allows you to reinvest earnings into the business to promote sustainability and capitalize on tax benefits.

  • Decision: Opt for dividends over a salary for lower tax rates.
  • Retention: Retain more earnings within the corporation.
  • Alignment: Balances personal financial needs with the goal of fostering corporate growth.

5. Separate Personal Expenses

Maintaining a clear separation of personal and business expenses is not only a best practice in financial management but also a fundamental strategy for tax efficiency.

Business owners should carefully track and segregate personal expenses from business-related costs. This will ensure accurate financial reporting and prevent any personal expenses from being included in corporate tax filing.

This will safeguard you against potential tax complications and lays the groundwork for effective corporate tax planning, ensuring compliance and fiscal responsibility.

  • Best Practice: Maintain a clear distinction between personal and business expenses.
  • Diligence: Track and segregate personal expenditures from business costs.
  • Importance: Ensures accurate financial reporting and prevents the inclusion of personal expenses in corporate tax filings.

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Contact Liu & Associates

Navigating the complexities of corporate tax reduction requires professional expertise.

Liu & Associates stands as a reliable partner, specializing in helping businesses with tailored strategies to minimize tax liabilities while ensuring tax compliance.

We offer a wealth of experience and expertise when it comes to corporate tax filing. Our dedicated team is here to work with you to understand your unique circumstances and provide advice and strategies that align with your goals.

Partnering with Liu & Associates offers a proactive approach to corporate tax reduction.

Contact us today to explore customized solutions that cater to the unique needs of your business.

The 2023 Guide To Year-End Tax Planning for Businesses

As we approach the end of the year, it’s a crucial time to focus on something that directly affects your financial health—year-end tax planning.

Understanding and managing corporate taxes might seem complex, but it’s all about strategic business planning and making smart financial choices. This will save you money now and set you up for long-term success.

Review Your Payroll

When preparing for year-end tax obligations, a thorough review of your payroll is necessary. Be sure to accurately report employee income, deductions, and benefits.

Assess compliance with tax regulations, and make necessary adjustments to avoid penalties. Utilize available tax credits and incentives related to employee benefits.

  • Verify Employee Information: Double-check all employee records for accuracy, including personal details, taxable income, and benefits.
  • Assess Compliance: Ensure that your payroll practices comply with current tax regulations to avoid potential penalties or legal issues.
  • Adjustments for Deductions: Review and adjust deductions for items such as health insurance, pension plan contributions, and other employee benefits.
  • Explore Tax Credits: Identify and take advantage of any available tax credits or incentives related to employee benefits. This can positively impact your overall tax liability.

By addressing these aspects during your payroll review, you can fulfill your year-end tax obligations. You can also optimize your financial standing for the upcoming year.

Repay Your Loans

Repaying loans not only helps in reducing financial liabilities but can also improve your business’s financial reliability. This can potentially lead to more favorable lending terms in the future.

Take the opportunity to negotiate with lenders for favorable payoff arrangements. You can also explore refinancing options that align with your long-term financial goals.

You should carefully review the terms and conditions of any outstanding loans to identify any prepayment penalties or fees. This will ensure that your repayment strategy is economically sound and in compliance with contractual obligations.

Count Your Capital Gains and Losses

A careful examination of capital losses and gains is crucial for effective corporate tax planning. Consider the following steps to optimize this aspect of your financial strategy:

  • Strategic Selling: Evaluate your investment portfolio and consider selling assets strategically. This can help offset capital gains with losses, thereby minimizing your overall tax liability.
  • Tax-Loss Harvesting: Explore the strategy of tax-loss harvesting, wherein you sell investments at a loss to counterbalance gains. This technique can be particularly effective in managing your tax exposure.
  • Consult Financial Experts: Engage with financial experts or tax advisors to gain insights into the specific implications of your capital gains and losses. Professionals can provide tailored advice based on your business’s unique financial situation.
  • Assess Financial Health: Understand the overall impact of these transactions on your business’s financial health. Evaluate how the decisions made in this regard align with your broader financial objectives and long-term business goals.

Implementing these strategies will help you navigate the complexities of capital gains and losses. They will also help your business position itself for a more favorable corporate tax return outcome.

Find Relief Measures

In times of economic uncertainty, governments may introduce additional relief measures to aid businesses facing challenges.

Regularly monitor regulatory authorities’ updates to leverage any new opportunities or incentives that align with your business needs.

Collaborate with financial advisors to ensure you thoroughly understand the evolving economic landscape and its potential impact on your tax planning strategies.

Donations

Male hands holding donation bowl with sign reading, Donate

Charitable donations can be a powerful tool for corporate tax planning. When including charitable giving in your year-end tax strategy, consider the following:

  • Evaluate Philanthropic Goals: Clearly define your philanthropic objectives to align donations with your business values and mission.
  • Choose Eligible Charities: Ensure that the charities you contribute to are eligible for tax deductions. Verify their tax-exempt status and reputation.
  • Record Contributions: Keep meticulous records of all donations, including receipts and acknowledgment letters from charities. Accurate documentation is crucial for claiming deductions.
  • Claim Applicable Deductions: Familiarize yourself with tax regulations related to charitable contributions. Understand the criteria for claiming deductions and maximize the benefits available.
  • Consult with Tax Professionals: Engage with tax professionals or financial advisors to navigate the nuances of charitable giving within the context of your overall tax strategy.

These steps can help your business contribute to meaningful causes and leverage the associated tax benefits to enhance its financial position.

Prepare for EIFEL Rules

Stay abreast of changes in tax regulations, including the introduction of Economic Interest in a Foreign Entity (EIFEL) rules.

Understand how these rules may impact your international business activities and take proactive steps to align with the new requirements. Engage with tax experts to thoroughly review your cross-border transactions, ensuring compliance and identifying opportunities for optimization.

Consider providing training for your international staff to ensure awareness and adherence to EIFEL rules, fostering a culture of regulatory compliance within your organization.

Plan Ahead Before You Exit Your Business

If you’re contemplating an exit strategy for your business, meticulous tax planning is vital. To ensure a smooth transition and optimize tax implications, consider the following:

  • Evaluate Valuation Methods: Understand the valuation methods applicable to your business. This insight is crucial for determining the tax implications of a sale or merger.
  • Explore Tax Credits and Incentives: Investigate potential tax credits or incentives associated with business exits. Governments may provide benefits for specific industries or circumstances.
  • Engage Legal and Financial Experts: Seek guidance from experienced legal and financial professionals. They can help you navigate legal complexities, assess financial implications, and structure the exit in a tax-efficient manner.
  • Review Contracts and Obligations: Scrutinize existing contracts and obligations. Ensure that your exit strategy aligns with contractual agreements and consider potential legal consequences.
  • Employee Considerations: If employees are affected by the exit, plan for the implications on their contracts, benefits, and potential tax consequences. Communicate transparently to maintain morale and compliance.
  • Timing Matters: The timing of your exit can significantly impact tax liabilities. Evaluate whether delaying or expediting the exit aligns with your financial objectives.
  • Succession Planning: If transitioning ownership within the family or to internal stakeholders, implement a robust succession plan. This includes addressing potential tax implications for the succeeding owners.
  • Legal Structure Optimization: Explore the optimal legal structure for the exit. Depending on your business’s structure, different tax consequences may arise, and choosing the right approach is critical.
  • Compliance with Regulatory Changes: Stay informed about recent regulatory changes that may affect business exits. Compliance with evolving laws ensures a smoother process and minimizes unexpected tax liabilities.

By addressing these considerations and collaborating with experts, you can enhance the tax efficiency of your business exit. Thorough planning contributes to a seamless transition, protects your financial interests, and positions your business for future success.

Strategic Year-End Tax Planning for Financial Success

Year-end tax planning is a critical component of overall business strategy.

By proactively addressing payroll, loans, capital gains, relief measures, donations, EIFEL rules, and business exits, businesses can position themselves for financial success in the coming year.

Stay informed, seek professional advice, and make strategic decisions to maximize your tax efficiency.

For personalized guidance and expert assistance in navigating the complexities of business tax planning, reach out to Liu & Associates.

Our experienced team is dedicated to helping businesses optimize their financial strategies.

Contact us today to ensure your business is well-prepared for the challenges and opportunities that lie ahead.

Start Smart: Tax Planning Strategies for New Businesses in Alberta

Starting a new business is exciting, but it also comes with certain responsibilities, including corporate tax planning.

Proper tax planning strategies can help you maximize your deductions, minimize your tax liabilities, and ensure compliance with the tax regulations in Alberta.

At Liu & Associates, we are here to help you through the complexities of corporate tax planning so you can focus on what really matters – your business.

In this article, we will discuss essential tax planning considerations for new businesses in Alberta, guiding you toward making informed decisions to optimize your tax situation.

Getting Organized With Taxes

When you are starting a new business, one of the fundamental steps in tax planning is to establish a strong foundation by organizing your financial records effectively.

By following these actionable tips, you can ensure a streamlined tax preparation process and gain valuable insights into your business’s financial health:

  • Maintain Accurate and Up-to-Date Records: Keep detailed records of your income, expenses, receipts, and invoices. Categorize them appropriately to make it easier to identify deductible expenses and track your business’s financial performance.
  • Separate Personal and Business Finances: It’s crucial to separate your personal finances from your business finances. Using your personal accounts for business finances can make it difficult to track deductible expenses accurately.
  • Implement a Reliable Bookkeeping System: Establish a systematic bookkeeping system to ensure consistency and accuracy in recording your financial transactions.
  • Track and Store Documentation: Keep a record of all relevant tax-related documents, such as receipts, invoices, and bank statements.
  • Establish a Schedule: Set aside dedicated time every month or quarter to take a look at your financial records and update them if necessary.

By properly organizing your taxes, you can establish a solid foundation for your tax planning strategies, streamline your record-keeping process, and ensure compliance with tax regulations.

Choosing a Business Structure

The choice of your business structure can have significant implications for your tax planning.

In Alberta, you can choose from various options, such as sole proprietorship, partnership, corporation, or a limited liability company (LLC):

  • Sole Proprietorship: Owned and operated by one individual, with personal liability for debts. Taxes reported on personal tax returns.
  • Partnership: Business owned by two or more individuals or entities. Partners share profits, losses, and liabilities. Taxes reported on personal tax returns.
  • Corporation: Separate legal entity from owners (shareholders). Limited liability protection. Corporate income tax is paid on profits. Shareholders are taxed on dividends received.
  • Limited Liability Company (LLC): Hybrid structure combining the limited liability of a corporation with the pass-through taxation of a partnership. Members report income on personal tax returns.

Each structure has different tax advantages and disadvantages.

Consulting with a tax professional or accountant can provide valuable insights and help you determine the most suitable structure for your business.

Deciding About Investments

Tax planning for your business should include careful consideration of investment decisions, as Alberta provides various tax incentives and credits to support specific activities and industries.

So, when it comes to making decisions about investments, new businesses in Alberta have access to advantageous tax planning strategies.

One such strategy is the Innovation Employment Grant, which aims to foster economic growth by providing support to small and medium-sized businesses engaged in research and development (R&D).

These businesses can receive a grant worth up to 20% of qualifying expenditures, encouraging investment in R&D across all industries.

By complementing the Job Creation Tax Cut, this program specifically benefits early-stage firms that may not be profitable yet, further promoting investment and diversification.

Additionally, the Agri-processing Investment Tax Credit (APITC) offers a 12% non-refundable tax credit to corporations investing $10 million or more in constructing or expanding agri-processing facilities in Alberta.

By incentivizing large-scale agri-processing investments, the program capitalizes on Alberta’s existing competitive advantages and aims to establish the province as the preferred destination for such ventures.

Overall, these tax planning strategies, including the Innovation Employment Grant and the APITC, provide support to businesses of all sizes and at various stages of their business cycles, encouraging investment, innovation, and economic prosperity in Alberta.

Claiming Deductions

Deductions are an essential component of your tax planning strategies and allow you to reduce your taxable income and, consequently, your tax liability.

As a new business, it’s possible that you are eligible for various deductions, including startup costs, office expenses, advertising and marketing expenses, employee wages, and more.

  • Startup Costs: Deduct expenses incurred during the startup phase, such as market research, legal fees, incorporation fees, and initial advertising costs.
  • Office Expenses: Deduct costs associated with running your office, including rent, utilities, office supplies, and equipment.
  • Advertising and Marketing Expenses: Deduct expenses related to promoting your business, such as advertising campaigns, website development, online marketing, and print media advertisements.
  • Employee Wages: Deduct the wages and salaries paid to your employees, including benefits and contributions to employee benefit plans.
  • Professional Services: Deduct fees paid to professionals such as accountants, lawyers, and consultants who provide services directly related to your business operations.
  • Travel and Entertainment: Deduct eligible expenses for business travel, including transportation, accommodation, meals, and entertainment incurred for business purposes.
  • Business Insurance: Deduct premiums paid for business insurance coverage, such as general liability insurance or professional indemnity insurance.
  • Home Office Expenses: If you operate your business from home, you may be eligible to deduct a portion of your home expenses, including property taxes, mortgage interest, utilities, and maintenance costs.
  • Vehicle Expenses: Deduct expenses associated with business-related vehicle use, such as fuel, repairs, insurance, and lease payments.
  • Interest and Financing Costs: Deduct interest expenses on business loans and credit card interest charges incurred for business purposes.

Familiarize yourself with the deductions available in Alberta and maintain proper documentation to substantiate your claims.

Staying Up to Date About Changes

By actively staying informed about tax law changes, new businesses can adapt their tax planning strategies to stay compliant and avoid potential penalties.

Subscribing to newsletters from the Canada Revenue Agency (CRA) provides a direct source of updates.

In addition to subscribing to newsletters from the Canada Revenue Agency (CRA) and staying informed about tax law changes, it’s highly recommended for new businesses to establish a relationship with a trusted tax professional.

A knowledgeable tax professional can provide ongoing guidance, help you navigate complex tax regulations, and ensure that your tax planning strategies align with the latest updates.

By keeping in touch with a tax professional, you’ll have expert support to address any tax-related concerns or questions that may arise throughout your business journey.

Proactively understanding and adapting to new tax requirements not only safeguards your business but also ensures that you can take advantage of any opportunities that arise from evolving tax regulations.

Stay ahead of the game and keep your tax planning strategies up to date.

Tax Planning Strategies Tailored to Your Needs

Effective tax planning is crucial for the financial success of any new business.

By implementing the right strategies, you can optimize your tax position and maximize your savings.

For personalized advice and expert assistance in corporate tax planning and returns, trust the experienced professionals at Liu & Associates.

With their in-depth understanding of the unique challenges and opportunities that new businesses face in Alberta, they can provide tailored and unique solutions to help you navigate the complexities of taxation.

Contact Liu & Associates today to ensure your business starts smart and stays on the path to financial prosperity.

Meal & Travel Expenses for Corporate Tax Filing

woman reading text messages on a cellphone while sitting alone at a counter in a cafe enjoying a meal

Meal expenses are a common tax deduction for many individuals, but determining what is and isn’t taxable can be confusing, especially when it comes to corporate tax planning.

The Canada Revenue Agency (CRA) sets out specific rules and regulations for what can be claimed as a meal expense, and it’s important to understand these guidelines to avoid any tax complications.

In this article, we’ll explore what is and isn’t taxable when it comes to meal and vehicle rates, the difference between meal, travel, and entertainment expenses, the limits to meal expenses, how to claim meal expenses on your tax return, and if any of this differs if you’re self-employed.

Let’s get started!

What’s Taxable and What Isn’t When It Comes to Meal and Vehicle Rates

When it comes to meal and vehicle rates, not all expenses are created equal.

The CRA sets out specific guidelines for what can and cannot be claimed as a deduction.

In general, meal expenses are only tax-deductible if they are incurred while you are away from your usual place of business or employment or if you are required to work overtime and cannot reasonably return home for a meal.

If you travel for work purposes, you can claim meal expenses with the CRA as long as the travel is for a duration of 12 hours or more.

The CRA also sets out specific rules for vehicle expenses. If you use your personal vehicle for work purposes, you can claim expenses such as gas, insurance, and maintenance.

However, you can only claim the portion of these expenses that relate to work-related use.

For example, if you use your car 50% of the time for work purposes, you can only claim 50% of the expenses.

Is There a Difference Between a Meal Expense, a Travel Expense, and an Entertainment Expense?

It’s important to understand the differences between meal expenses, travel expenses, and entertainment expenses.

Meal expenses are costs associated with food and beverages while traveling or working away from your usual place of business.

Travel expenses are costs associated with travel, such as transportation, accommodation, and meals.

Entertainment expenses are costs associated with entertaining clients or customers, such as tickets to sporting events or meals at restaurants.

How Are Meal and Travel Expenses Calculated?

To calculate meal and travel expenses, you can choose between the detailed or simplified method.

The detailed method allows you to claim the actual amount you spent, while the simplified method uses a flat rate for vehicle and meal expenses.

Keep your receipts if you use the detailed method, but note that the CRA may still request documentation if you choose the simplified method.

Your total travel expenses include travel assistance provided by your employer and any expenses you paid for.

Is There a Limit to Meal Expenses When I File My Taxes?

Yes, there is a limit to meal expenses when filing taxes with the CRA, and it depends on the method chosen to calculate the expenses.

If using the simplified method, the limit is $23 per meal, to a maximum of $69 per day per person.

However, if using the detailed method, the limit is the actual amount spent, with receipts required as documentation.

How Do I Claim Meal Expenses on My Return?

Claiming meal expenses on your tax return can be a straightforward process if you keep accurate records, follow the eligibility criteria set out by the CRA, and enter the information correctly on your tax return.

By taking the time to understand the rules and regulations, you can reduce your tax bill and avoid any complications with the CRA.

Here are the steps to follow:

Step 1: Keep Accurate Records

To claim meal expenses on your tax return, you need to keep accurate records and receipts of all meals and beverages purchased for business purposes.

These records should include the date, location, cost, and business purpose of each meal.

Make sure you keep these records organized and in a safe place.

Step 2: Determine Eligibility

Meal expenses are only tax-deductible if they are incurred while you are away from your usual place of business or employment or if you are required to work overtime and cannot reasonably return home for a meal.

If you travel for work purposes, you can claim meals as long as the travel is for a duration of 12 hours or more. Make sure your expenses meet the eligibility criteria set out by the CRA.

Step 3: Calculate the Amount

Calculate the total amount of meal expenses you are eligible to claim on your tax return.

Remember to only claim expenses that are incurred for business purposes and that meet the CRA’s guidelines.

Step 4: Enter on Tax Return

On your tax return, enter the total amount of meal expenses you are claiming as a deduction against your income.

Be sure to follow the instructions on your tax return carefully to ensure you are entering the information in the correct place.

Step 5: Keep Supporting Documents

Make sure you keep all supporting documents, including receipts and records of each meal, in case the CRA requests them for verification.

These documents should be kept for at least six years from the end of the tax year to which they relate.

Is Any of This Different if I’m Self-Employed?

If you’re self-employed, the rules and regulations for claiming meal expenses are slightly different.

You can claim meal expenses as a deduction against your self-employment income as long as they are incurred for business purposes and meet the CRA’s guidelines.

However, it’s important to note that you cannot claim meals that are considered personal or private in nature, such as meals with family or friends.

In addition, if you’re self-employed, you can also claim vehicle expenses related to your business.

This includes expenses such as gas, insurance, and maintenance.

However, you can only claim the portion of these expenses that relate to work-related use, similar to when you use your personal vehicle for work purposes as an employee.

Understanding Meal and Travel Expenses for Corporate Tax Filing

Understanding the guidelines and regulations surrounding meal and travel expenses can save you time and money when it comes to filing your corporate tax returns.

By keeping accurate records and receipts and ensuring that your expenses meet the eligibility criteria set out by the CRA, you can claim meal expenses as a deduction against your income.

It’s also important to note the differences between meal, travel, and entertainment expenses and to keep personal and private expenses separate from business expenses.

If you’re still unsure about how to claim your meal and travel expenses, it’s always a good idea to seek the advice of a professional.

At Liu & Associates, we specialize in corporate tax filing and can help you navigate the complicated world of tax regulations.

Contact us today for a consultation, and let us help you maximize your tax deductions while staying compliant with the CRA.

Tax Planning Strategies for Business Owners

Small family restaurant owners discussing finance calculating bills and expenses of new small business

When running a small business, it is important to plan ahead and understand your tax obligations.

Understanding small business tax planning strategies can help minimize your tax burden.

But numbers can sometimes be confusing, and you want to focus your time and energy on growing your small business.

We at Liu and Associates understand that, and we’re here to help!

Here are some tax planning strategies that will help with your small business:

Keep Accurate Records

Keeping accurate records is an essential part of tax planning for a small business.

Here are some tips to help you keep your records accurate and organized:

  • Choose a Record-Keeping System: Choose a record-keeping system that works for your business, whether it’s a spreadsheet, accounting software, or a combination of both.
  • Track All Income and Expenses: Keep track of all income and expenses related to your business. 
  • Separate Business and Personal Expenses: This can be done by using a separate bank account and credit card for business expenses and keeping track of personal expenses separately.
  • Reconcile Accounts Regularly: This involves comparing your records to bank and credit card statements and making sure that they match.
  • Back Up Your Records: Make sure to back up your records regularly to avoid the risk of losing important information.

By following these tips, you can keep your records accurate and organized, which can help you make informed business decisions and comply with tax laws and regulations.

Take Advantage of Tax Credits and Incentives

There are several tax credits and incentives available to Canadian business owners.

It’s important to note that eligibility requirements and application processes can vary for each of these programs.

Here are some of the most common ones to consider when tax planning for small businesses:

Scientific Research and Experimental Development (SR&ED) Tax Credit

This is a federal tax incentive program that encourages Canadian businesses to conduct research and development activities.

Eligible businesses can claim a tax credit of up to 35% on eligible expenditures.

Capital Cost Allowance (CCA)

This is a tax deduction that allows businesses to write off the cost of assets purchased for their business.

The CCA rate varies depending on the asset, but it can range from 4% to 100% of the cost.

Provincial Tax Credits

Many provinces offer their own tax credits and incentives for businesses. Here are some examples of what is available in Alberta:

  • Alberta Investor Tax Credit (AITC): This program provides a 30% tax credit to investors who invest in eligible Alberta small businesses. The maximum credit per investor is $60,000 per year, and the maximum credit per business is $5 million.
  • Interactive Digital Media Tax Credit (IDMTC): This program provides a tax credit of up to 25% of eligible labor and marketing expenses for companies that develop interactive digital media products in Alberta. The maximum credit is $500,000 per year.
  • Apprenticeship Job Creation Tax Credit (AJCTC): This program provides a tax credit to employers who hire and train eligible apprentices in designated trades. The credit is equal to 10% of the eligible salaries and wages paid to the apprentice, up to a maximum credit of $2,000 per year.

Canada Small Business Financing Program (CSBFP)

This is a federal program that helps small businesses obtain financing by guaranteeing loans made by participating financial institutions.

The program can guarantee up to 85% of the loan amount, up to a maximum of $350,000.

Export Development Canada (EDC)

EDC provides financing and insurance to Canadian exporters. This can help businesses expand their markets and increase their international sales.

Consider Deferring Income and Accelerating Expenses

Man using calculator and calculate bills in home office.

Canadian businesses can defer income and accelerate expenses by taking advantage of various tax planning strategies. Here are some common strategies:

  • Deferring Income: Businesses can defer income by delaying the receipt of revenue until the next fiscal year.
  • Accrued Expenses: Businesses can accelerate expenses by accruing expenses that will be paid in the following year.
  • Prepaid Expenses: Businesses can also accelerate expenses by prepaying expenses that will be incurred in the following year.
  • Depreciation: Businesses can also accelerate expenses by taking advantage of depreciation. By depreciating assets over their useful life, businesses can deduct a portion of the cost of the asset each year, reducing their taxable income.

Use Tax Planning Software

Using tax planning software, such as QuickBooks, can offer several benefits when it comes to tax planning for small businesses.

Here are a few key advantages:

  • Accuracy: Tax planning software is designed to help minimize errors and ensure that tax returns are accurate.
  • Time savings: Tax planning software can help save time by automating calculations, minimizing data entry errors, and streamlining the tax preparation process
  • Cost savings: By using tax planning software, businesses can often save money on accounting and tax preparation fees.
  • Customization: Many tax planning software programs can be customized to meet the specific needs of businesses or individuals.

It’s important to choose a reputable software provider and consult with a tax professional to ensure that the software is being used properly and in compliance with tax laws and regulations.

Seek Professional Advice

As a Canadian business owner, seeking professional tax advice can provide numerous benefits. Here are some reasons why:

  • Compliance with Tax Laws: A tax professional can help ensure that your business is complying with all relevant tax laws, regulations, and filing requirements.
  • Minimizing Tax Liability: A tax professional can help identify deductions, credits, and other tax breaks that can help reduce your business’s tax liability. They can also advise on tax planning strategies that can help minimize tax liabilities in the future.
  • Avoiding Audit Risk: A tax professional can help minimize the risk of an audit by ensuring that your tax returns are accurate and compliant with tax laws and regulations.
  • Business Structuring: Tax professionals can also advise on the best business structure for your business to help minimize tax liabilities. This can include incorporation, partnerships, or sole proprietorships.
  • Tax Disputes: If your business is involved in a tax dispute with the CRA, a tax professional can represent your business and provide expert advice on how to resolve the dispute.

Overall, seeking professional tax advice can help your business comply with tax laws, minimize tax liabilities, reduce audit risk, and make informed business decisions.

A tax professional can provide valuable guidance and help ensure that your business’s tax affairs are in order.

Tax Planning for Small Businesses

With tax law constantly changing, a trusted financial advisor like Liu & Associates is vital to directing your specific course.

Let us help you understand how tax planning strategies can help you achieve your financial goals.

Contact us today to get started!

6 Important things to know about corporate tax planning in Alberta for 2023

A lady signing a contract with a ballpoint pen.

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.

Contact our corporate tax planning team today to get started. 

How Much Should My Business Donate to Charity This Year?

businessman donates to charity on phone while sitting at desk

Charitable giving is an amazing opportunity for Canadian businesses to support causes that matter most to them.

Donating to charity is an excellent way for your business to connect with your community and improve team morale among your employees.

It can also have financial benefits as well when it comes to corporate tax planning.

Here is more information on charitable giving and how much your business should donate to charity this year:

How Does Charitable Giving Affect Corporate Taxes?

Tax Deductions

Unlike personal taxes, a donation made by a corporation can be used as a deduction against the business’s income and is treated like any other expense.

When a corporation makes a donation, it can reduce the amount of income that is subject to tax.

Therefore, by making donations that are eligible for tax deductions, you can reduce your business’s tax liability.

However, the value of the tax savings depends on whether the reduction of income is subject to the small business tax rate, general corporate tax rate, or corporate investment tax rate.

How to Calculate

Charitable donation tax credit rates vary from province to province and are based on the rates determined in 2017.

For example, if your business claims a taxable income of $250,000 and makes a donation of $20,000, this is how the tax will be calculated:

Federally:

  • 15% on the first $200 – $30
  • 33% of the lesser of the amount by which the donation exceeds $200 ($19,800) or the amount by which your taxable income exceeds $200,000 ($50,000) – $6,534
  • 29% of the amount of total donations for the year over $200 that is not eligible for the above rate ($50,000-$19,800=$30,200) – $8758
  • Total: $15,322

Provincially:

  • 10% on the first $200 – $20
  • 21% on the remaining $19,800 – $4,158
  • Total: $4,178

Therefore, in this example, you can claim $19,500 of the $20,000 charitable donation.

Of course, this is a basic calculation and doesn’t take into account your entire tax situation. 

To best calculate your taxable donations, it is recommended that you speak with an expert corporate tax accountant who can ensure all calculations are accurate.

Limits and Deadlines

Corporations can claim up to 75% of their net income in donations which must be claimed within the business’s fiscal year as an expense.

Sharing Claimable Donations Between Corporations

If you own more than one corporation, you cannot share donations between businesses when it comes to planning and filing your corporate taxes.

Only the corporation that made the donation can claim it.

Carryover

If a donation cannot be used during the tax year, it can be carried forward for up to five years.

What Donations Are Tax Deductible in Canada?

In order for your business to qualify for the donation tax dedication, you must donate to a qualified charity.

These are charities that are recognized by the CRA and can issue donation receipts for the money your business gives.

You can find a list of registered donees through the CRA.

Some eligible organizations include:

  • Registered charities
  • The United Nations
  • National arts service organizations
  • Registered Canadian amateur athletic associations (RCAAAs)
  • Registered universities outside of Canada (that includes students from Canada)

Donations to US charities are allowed as long as your business has a US income source.

As far as what qualifies as an actual donation, the CRA recognizes donations as voluntary transfers of money or property in which you receive nothing in return.

If your business does receive something in return for your donation, the value of what you receive must be deducted from the amount of the donation.

For example, if your business purchases a $500 table at a charity dinner and the food costs $200, the eligible amount you can claim is $300.

How Much of a Charitable Donation Is Tax Deductible?

man holding a jar full of money

When it comes to claiming donations made through your business, how much of a charitable donation is tax deductible depends on the size of your company.

Small businesses, for instance, must list donations on Schedule 9 of a personal tax return, where they will receive the same tax credit treatment as a personal donation.

However, incorporated businesses have the choice to donate personally or through their corporation.

How Much Should I Donate Based on Revenue?

While there are no set rules as to how much you should donate based on your revenue, it’s important to remember that there are many ways to give charitably to organizations that align with your company’s values and mission.

The size of the donation should not be the only deciding factor – every dollar counts when it comes to supporting a worthy cause.

Overall, tax breaks shouldn’t determine how much your business gives to charity!

Take into consideration your company’s finances and choose an amount that suits your budget.

Should We Match Our Employees’ Individual Donations?

If you’re wondering if you should match your employee’s individual donations, the answer is yes!

Matched giving is an amazing way to involve your employees in your business’s charitable giving by matching the money they raise.

It encourages your employees to engage in supporting a worthy cause, and matching their donations will help them reach their goals and show your support.

Plus, matching your employees’ individual donations will help your company make a large social impact!

Encouraging your employees to donate to a cause doesn’t have to involve fundraising events. You can set up payroll donations or accept personal donations from your team.

And, yes, matched giving counts as a tax-deductible charitable donation – but you can only claim the amount you contribute, not the amount raised by your employees.

How Do We Choose a Cause?

Before you make any charitable donations through your business, it’s important that you choose the right cause to support.

That’s not to say that some causes are better than others, but you want to choose a cause that best aligns with your company, its values, and its employees.

Here are some tips for choosing a cause to support:

Choose a Cause That Supports Your Company’s Values

Think about your company’s core values and whether or not you want to donate to charities related to your business or support the needs of your community.

Just keep in mind that you can do both!

For instance, if you own a restaurant, you could donate to charities that address hunger and nutrition, local food banks, soup kitchens, and school breakfast programs.

It’s also important that you consider the charity’s values as well – do they align with yours?

Take a look at their core mission and see if they share your views and values.

Research the Charity Before Donating

Once you decide which charity you want your business to support, don’t be afraid to ask questions.

Talk to others in your industry and your community for feedback on the charity – have they made a significant impact with their donations?

You can also speak with the executive director of the charity you wish to support.

Consider their strategy and their long-term plan.

Ready to Get Started?

At Liu & Associates, we are dedicated to helping your company’s growth by offering exceptional corporate accounting services.

We can help you plan your charitable donations to optimize your support and tax deductions.

Get in touch with us today to get started!