Blog

Lorem ipsum dolor sit amet, consecte adipisicing elit sed do Lorem ipsum dolor sit amet, consecte adipisicing elit sed do

How can you pay less taxes in Canada as a business owner?
23 Apr, 2024

How can you pay less taxes in Canada as a business owner?

Knowledge is power when it comes to business taxes. Awareness of the right accounting services, taxation tips, and business practices can save you money in the long run. After serving the industry as chartered professional accountants for decades, we know what can work for startups and SMEs dealing with tax planning issues.   Check out our top 3 tips that will help you save more money on taxes in Canada: 

Get incorporated

Incorporating your business in Canada can offer you various benefits, such as lower tax rates on eligible dividends and the ability to defer taxes on reinvested profits.  Here’s an explanation: Corporations in Canada have to pay a flat tax rate on their profits. However, corporations also distribute a part of their profits as dividends to their shareholders, who receive tax credits. Thus, as an incorporation, distributing dividends lowers the overall tax burden on the profits of the business.  Also, if a corporation chooses to reinvest its profits back into the business instead of distributing them as dividends, the reinvested amount will not be taxed. Due to this, corporations can grow their capital base and increase their future profits without attracting tax on their income.  Finally, shareholders who are also employees of the corporation can get a reasonable salary. This salary is a tax-deductible expense for the corporation. Besides, the corporation can also offer benefits like health insurance or a company vehicle. In both cases, you are likely to reduce your taxable income rather than provide the same income directly to the owner of a business, which isn’t an incorporation. If you are indecisive about whether or not to get incorporated, check out our blog, Corporation vs. Sole Proprietorship, and make an informed decision.  Consult with an accounting firm in Surrey (if your business is incorporated in BC) or seek our free consultation to find out if incorporation is the right choice for your business.

Claim eligible deductions and credits.

CPA in Surrey Canada put great emphasis on keeping records of business transactions. Why? Because many of them can be deduced from taxable income only if the supporting documents are there for the transaction. We’ve listed some common deductions that businesses fail to secure due to a lack of keeping a good record of them. Here they are:  Deductions:
  • Utilities and internet costs
  • Interest on business loans
  • Office supplies and equipment
  • Marketing and advertising expenses
  • Professional fees (accounting, legal)
  • Salaries and wages paid to employees
  • Rent or mortgage for your business premises 
Credits: Unlike deductions that lower taxable income, tax credits directly reduce the amount of tax you owe after your income is calculated. The government offers various tax credits to encourage specific business activities, such as:
  • Investment tax credit for clean technology
  • Scientific research and development (SR&ED) credit
  • Canada training credit for employee training expenses
How does it reduce the tax burden? Imagine this: Your business has a revenue of $100,000. It qualifies for $30,000 in deductions. Because of this, your taxable income is now $70,000. We’ll assume that the corporate tax rate is 20%.
  • If you don’t use deductions, you would pay tax on the full $100,000, resulting in a tax bill of $20,000 (100,000 * 20%).
  • If you use deductions, you only pay tax on the $70,000 taxable income, reducing your tax bill to $14,000 (70,000 * 20%).
The Canada Revenue Agency (CRA) has strict guidelines for what qualifies as a business expense. To find out whether your deductions meet these criteria, consult with a Corporate Planning & Compliance Canada firm. 

Pay yourself a salary and dividends. 

For an incorporated business, you can draw income in two ways: by paying yourself a salary or dividends. How can any or both of them reduce the tax burden for your business?  Let’s find out! Salary is something you’ll receive as a regular payment for your employment in the corporation. It will be taxed like regular income on your marginal tax rate, and the organization will deduct it from its taxable income. Canada Pension Plan (CPP) contributions will be made by your employer (the company) for the contribution you’ll make from your salary.  Dividends, on the other hand, are payments made to shareholders of the company from its profits. These are not deductible for the corporation, but shareholders can receive a tax credit on this amount.  Due to this, sometimes dividends prove to be more tax-efficient for the shareholder than a salary. 
The Tax Advantage:
To understand the differential tax treatment between salaries and dividends, we’ll take an example: Assumptions: 
  • Corporate profit: $100,000
  • Assume a high personal tax rate of 40%. chartered professional accountant BC 
Scenario 1: Paying all profits as a salary
  • Salary: $100,000
  • Personal income tax on salary: $100,000 * 40% = $40,000
  • Corporate tax (assuming a 20% rate): $100,000 * 20% = $20,000
  • Total tax paid: $20,000 (corporate) + $40,000 (personal) = $60,000
Scenario 2: Salary and Dividends (split 50/50)
  • Salary: $50,000
  • Corporate tax on profit remaining after salary ($50,000): $50,000 * 20% = $10,000
  • Dividend: $50,000
  • Dividend tax credit (the exact rate depends on your province): Let's assume a 15% credit for illustrative purposes only.
  • Effective tax on dividend: $50,000 * (40% - 15%) = $12,500
  • Total tax paid: $10,000 (corporate) + $12,500 (dividend) + $20,000 (salary on the remaining $50,000) = $42,500
As you can see, splitting your income between salary and dividends leads to a significant reduction in total taxes paid ($60,000 vs. $42,500). Remember:
  • The optimum split between salary and dividends depends on many factors, such as personal tax bracket, province of residence, CPP requirements, and more. 
  • Don’t forget there is a “reasonable salary” condition, which is why CRA can challenge an unreasonable amount of salary and reclassify it as dividends.
To find out what suits your incorporation and you the best, get professional advice from a Corporate Tax filing Surrey Canada firm or seek our free consultation by visiting our website.

Wrapping Up!

For a startup or SME owner in Canada, tax planning is instrumental. Keep yourself updated to have an informed discussion with a chartered professional accountant BC regarding your tax situation. You can also get in touch with accounting and tax experts at CJCPA who have helped businesses stay on top of their finances with their decades of experience. Apart from helping businesses maximize their business income, they have successfully reduced taxable income.  To find out how your startup can improve its financial health, book your free consultation with us now!  
How to Pay Yourself from a Corporation in Canada?
08 Apr, 2024

How to Pay Yourself from a Corporation in Canada?

If you’ve been looking for an answer to this question, it is safe to assume that you are involved in the day-to-day operations of your company, and are not just a passive investor.  As a newly incorporated small business owner, if you want to have an educated conversation with a Chartered professional accountant regarding whether you should draw dividends or salary from the business, it becomes necessary to understand the nuances. For example, how does the cash flow in your corporation? Also, what are the pros and cons of both dividends and salaries? Should you consider getting a combination of both? Which one can give me the best tax benefit in Canada? Make an informed decision and utilize the accounting services to their full potential. Check out the blog below to decide whether you should pay yourself from a corporation, and how you should do it!

Why do we pay ourselves salaries/ dividends from a corporation?

We pay ourselves from the corporations for a variety of reasons, starting with regulating the cash flow of the business to taking tax advantage. Here’s an explanation: 
  • Cash Flow Management
With salaries, you can charge the company for the labor you’ve spent on it as per the market rates so that your work doesn’t go unaccounted for. It also provides you with a steady predictable income, which is crucial for budgeting and expenses. Dividends, on the other hand, are paid out of the corporation's profits, offering flexibility. If your company has a lean month, you can reduce dividends without impacting your income. 
  • Tax Advantages
By paying yourself, you can potentially reduce taxes. In some cases, dividends may be taxed at a lower rate than salary. This is because the corporation has already paid taxes on its profits before distributing them as dividends.  However, tax laws can be complex, so seek assistance from an Accounting firm in Surrey to make the best decision. Also, salaries are subject to payroll taxes (like social security), whereas dividends are not. This saves the business owner money.
  • Seasonal Income and Business Growth
Businesses, especially young ones, often have fluctuating incomes. If you have the same scenario, then salaries can help you even out these fluctuations, ensuring a steady income for the owner. Besides, profits can be retained in the corporation for reinvestment in growth initiatives, while dividends will provide some personal income.
  • Regulating Money & Avoiding "Double Taxation"
Taking a salary keeps your personal finances separate from the business, which is important for legal and liability reasons. At the same time, if you simply withdraw money from the corporation without proper documentation (like a salary or dividend), it can be seen as a taxable distribution and be taxed twice - once on the corporate level and again on your personal income tax.

Paying Yourself A Salary From Your Business in Canada

It is one of the most common ways of paying yourself from a corporation, because “Salary” is understood by both the commoners and bank/ financial institutions.  Here’s how it works: Your corporation earns profits, out of which it pays salaries. This salary counts as an expense against the business. There is no business tax on the income paid as a salary. However, you’ll be liable to pay personal income tax, which will be applied to you as per the income tax bracket applicable. However, at the same time, you also have to pay the employer’s contribution to CPP (Canada Pension Plan) from the corporation’s profits. From the salary, you’ll be paying the employee’s contribution to CPP.

Paying Yourself a Salary: Pros & Cons Comparison

 
Advantages Limitations
Clear and Understood Income: Salary is a common income source and is easily understood by financial institutions for loans or mortgages. RRSP Contribution Room: Salary payments contribute to your Registered Retirement Savings Plan (RRSP) contribution room, allowing you to save for retirement. Tax Deductible Expense: Salaries are a tax-deductible business expense, reducing your corporation's taxable income. Payroll Requirements: Setting up payroll involves administrative tasks and deductions for CPP (Canada Pension Plan) from both the employer (corporation) and employee (you). Potential Higher Personal Income Tax: Salary income may be taxed at a higher personal income tax rate compared to dividends in some cases.

Paying Yourself Dividends From Your Business in Canada

  Dividends are another option for drawing income from your Canadian corporation. They do not attract any payroll deductions and are paid out of a corporation's after-tax profits. Here’s how it works: Paying yourself dividends from your Canadian corporation is a way to distribute the company's profits. Unlike a salary, dividends come from the money remaining after the corporation has paid its taxes. This means the profits you receive as dividends have already been taxed once at the corporate level. As a shareholder, you declare a dividend amount based on the corporation's available profits. The corporation then transfers those funds directly to your personal account. There are no payroll deductions or CPP contributions required for dividends, saving the corporation administrative hassle. It's important to note that dividends are typically taxed less favorably on your personal tax return than salary income. However, the combined corporate and personal tax burden on dividends might be lower depending on your situation.  If you operate your business from BC, you can consult a Chartered professional accountant BC that offers free consultation.

Paying Yourself Dividends: Pros & Cons Comparison

 
Advantages Limitations
Simpler Payout Process: Dividends avoid payroll deductions and paperwork, reducing administrative burden for the corporation. Potential Tax Savings: Depending upon the tax bracket your income falls in, a combination of corporate and personal tax on dividends may be lower than salary income. Flexibility: A business can adjust dividend payouts depending on the profits of the company. Thus, there is more flexibility than a fixed salary. No RRSP Contribution Room: Dividends do not contribute to RRSP. Thus, it limits your retirement savings options. Potential Tax Disadvantage: On your personal tax return, dividends are less favorably taxed than salaries. CRA Scrutiny: CRA may scrutinize your books if you are paying unreasonable dividend payments as it can be seen as a way of avoiding personal income tax.

How do you pick one - salary, dividend, or a combination of two?

Why choose a salary?
Salary is a good option to pay yourself if you want to contribute to your RRSP for retirement savings. Salary payments generate RRSP contribution room. Also, you need clear and verifiable income for loans or mortgages. A salary is a standard income source. Lastly, if your corporation has high taxable income, salaries will help reduce the corporation's taxable income.
Why choose a dividend?
On the other hand, dividends are a good option if you want a simpler payout process and avoid payroll formalities. When combined corporate and personal tax rates on dividends might be lower than on salary, you may want to consider consulting a tax accountant Surrey.  Besides, it is beneficial if you have alternative retirement savings plans and don't rely on RRSP contributions. Lastly, you want flexibility in your income and adjust payouts based on profits.
Why choose both?
A combination of salary and dividends might be good if you want some guaranteed income (salary) and some variable income based on profits (dividends). Also, as a business owner, you want to optimize your tax situation. However, it's better to consult an accountant Surrey (for businesses in BC) to find the best mix for your tax bracket. Get Professional Help! CJCPA is an industry expert, serving for 20+ years to small businesses and enterprises in Canada with its budget-friendly accounting and taxation services. It also offers business planning solutions Canada, which has helped entrepreneurs register positive transformation in their business growth. Book your first consultation for free with us, and get an expert tax professional, who will analyze your specific situation and recommend the most tax-efficient approach. If RRSP contributions are important, or you want to strike a good balance between stability and tax advantages, don’t hesitate to reach out to CJCPA today! PS: Our business insights are a great source of information for budding entrepreneurs and startup owners.
Corporation vs. Sole Proprietorship: What is best for your business in Canada?
01 Apr, 2024

Corporation vs. Sole Proprietorship: What is best for your business in Canada?

You might be a new entrepreneur or have been running your small business for quite some time. Whatever the case… deciding whether you should incorporate your business in Canada or stay as a sole proprietor can be difficult. After reading this blog, we suggest you discuss it further with a Chartered professional accountant.  Of course, running a small business as a sole proprietor in Canada seems lucrative because it is easy to set up, requires minimum experience, and there isn’t much paperwork involved. Also,  the proprietor will be in full control of the business.  On the other hand, despite being complex, incorporating a business in Canada has benefits in taxation, enjoys limited liability, and is often seen as more credible than a business which isn’t incorporated. To help you make an informed decision and choose the right accounting services, we’ve listed the benefits and differences between sole proprietorship vs. corporation in great detail. Don’t forget to book your free consultation with a CPA in Surrey for incorporation-related inquiries at the end of this blog. 

Benefits of Incorporating a Business in Canada

Even if as a small business owner you are conscious of losing some degree of control over your business, the following are the benefits of incorporating it that you must consider once.

Limited Liability Protection

This is a major perk.  If your business gets sued or incurs debt, your personal assets (like your house or car) are generally shielded from liability. This means you only risk what you've invested in the corporation.

Selling the Business in the Future 

Incorporation simplifies selling your business. Ownership is represented by shares, making it easier to transfer to a new owner.  Additionally, there's a Lifetime Capital Gains Exemption that allows you to deduct a significant portion of the capital gains on the sale of your qualified small business corporation (QSBC) shares. This can result in substantial tax savings.

Legacy and Continuity

A corporation has an independent existence separate from its owners. This means the business can continue to operate even if the founder dies or leaves. This allows you to build a legacy and potentially pass the business down to future generations.

Name Protection

If your business name is special for your operations, then incorporating your business will be the right move. With provincial or federal incorporation, you can secure the name. As a sole proprietor, registering it won’t be effective since someone can incorporate their business under your name.  The only option you have as a sole proprietor is to trademark your business name, which is an entirely different process.

Enhanced Credibility

Incorporation can make your business appear more established and professional.  This can be especially helpful when attracting clients, securing partnerships, or bidding on larger projects.

One-Time Cost vs. Recurring Fees

Incorporation involves a one-time fee. As a sole proprietor, you might need to renew business registrations periodically, leading to recurring costs.

Easier and Cheaper Access to Credit

Banks and lenders often view corporations as less risky than sole proprietorships. What does this mean? It means that it is easier to access loans and potentially lower interest rates for incorporated businesses than sole proprietor businesses.

Tax Savings

Canadian corporate tax rates are generally lower than personal income tax rates. This means you could potentially pay less tax on your business profits by incorporating. Note: Incorporation comes with additional responsibilities – maintaining corporate records, filing annual returns and more. It's wise to consult a Corporate Tax Filing Canada firm if incorporating is the right decision for you for tax purposes.

Why Incorporating Your Business May Not Make Sense?

Reason 1: You don’t earn a substantial income. 

Instead of getting your business incorporated right away, take a pause. Figure out if yours is a simple business with low income and plain operations, or something clearly opposite of it. Incorporating your business will eat away your profits if it is an easy side hustle and not more. Our suggestion would be to wait more and consult an Accounting firm in Surrey if you think you relate to this situation but want to explore how incorporating will work for your business.

Reason 2: Doubts on the profitability of business.

If you are just testing the waters, and are yet to explore the profitability of your venture, wait for at least till the time you are sure of its chances of succeeding. Incorporating a business is going to cost you more if you aren’t certain of its success. Take your time building it first. 

Reason 3: You want to keep maximum control. 

When you are in a position where you want to oversee all the decisions of your business because of its simplicity, you may not choose to incorporate your business. For scaling up the business, however, the corporation's structure is more suited for raising capital and attracting investors.

Make An Informed Decision- Ask For Assistance!

We listed down all the differences in the Corporation vs. Sole Proprietorship debate. Hope the in-depth analysis makes it easier to understand which one you should choose for the time being. However, we still advise you to reach out to a Business Planning Solution Canada firm if you are interested in incorporating your business in Canada but don’t know when. You can also book a free consultation with a Chartered professional accountant from CJCPA. The experts here have a combined 20+ years of experience in dealing with incorporating business, personal taxes and corporate taxes.  Stop deliberating on incorporation, invest your energy in core business - a CPA can help!  
3 Crucial Reasons Why Farmers Need a Cash Flow Statement
14 Mar, 2024

3 Crucial Reasons Why Farmers Need a Cash Flow Statement 

Farming is a unique business.  Why?  The agriculture and farming industry depends greatly upon the shift in seasons, market volatility, and unpredictable weather. When you hire a special accounting services provider, they’ll recommend one thing for sure– create a cash flow statement. Thus, it is not an option to get a cash flow statement of your business– it's necessary for survival of your farming operations too!

What is a cash flow statement?

A cash flow statement, as the name suggests is a report informing how the cash has moved in and out of the business for a particular period.  It records the cash activity of a business, where the focus is on finding out where the cash is going, and where is it coming from. One shouldn’t confuse it with an income statement, which reflects the revenue and expenses of a business, and the exchange of cash isn’t the focus. Rather, the cash flow statement deals solely with the actual cash transactions.  Why is it necessary to make cash flow statements? It's a crucial tool to understand liquidity of your business - whether it can meet short-term financial obligations or not! Besides, understanding what cash flow is, and how it works for your business is a necessary business management skill.  Not only do you gain insights on money, but also be agile enough to grab new opportunities, when they come up. Here are three key reasons why getting a CPA in Surrey for cash flow statement becomes particularly insightful in March:

Spring Funding Gap – The struggle is real!

  March is a critical pre-planting period. At this time of the year, expenses for fertilizers, seeds, and labor surge.  Quite often, the income earned out of the previous year’s harvest doesn’t survive until later. Combined with the upfront costs, there can be a major cash crunch. If farmers have a cash flow statement in place for March, it will help them this way:
  • Detect shortfalls early: By accurately anticipating expenses and income streams, farmers can proactively secure loans, negotiate payment terms, or adjust planting plans to avoid cash flow emergencies.
  • Set priorities for different transactions: Understanding cash availability allows for informed decisions on which crops to prioritize, what inputs to purchase, and whether to delay investments until later in the season.
  • Secure better loan terms: With a clear financial picture, farmers can approach lenders with confidence, demonstrating their understanding of cash flow needs and ability to repay debt.
To make cash flow statements or plan future finances, you can get a trusted CPA in Surrey Canada. Book your free consultation to find out! 

New Market Opportunities – How to capitalize? 

  Pre-planting demand and weather changes make March a significantly volatile month for commodity prices.  If farmers prepare a cash flow statement, it will assist them in capitalizing on the following opportunities:
  • Plan strategic grain sales: By understanding upcoming expenses and cash needs, farmers can time their sales to leverage favorable market conditions, potentially reducing reliance on debt and maximizing profits.
  • Identify price lock-in opportunities: With a clear cash flow forecast, farmers can assess if locking in specific prices ahead of planting makes sense, mitigating risk and ensuring sufficient funds for essential expenses.
  • Negotiate better input prices: Knowing their financial standing allows farmers to negotiate more effectively with input suppliers, potentially securing discounts or extended payment terms based on their proven cash flow management.
Seek the services of a Chartered professional accountant for your farm business to protect the seasonal uncertainties. Turn the wind in the opposite direction by capitalizing on opportunities provided by a CPA especially there for you. Book your consultation for free now!

Optimize Investments for Maximum Impact.

While March doesn’t offer benefits directly, the end-of-season sales on agricultural equipment, discounted off-season purchases, and government programs can pose you an opportunity — provided you have a cash flow statement.  Here’s why you must make the statement when it comes to investing in land and major assets.
  • Evaluating affordability: Understanding future cash flow allows farmers to make informed investment decisions, ensuring they won't strain their finances or jeopardize essential operations.
  • Selecting suitable financing options: With a clear cash flow picture, farmers can choose between different loan options, considering interest rates, repayment terms, and their impact on future cash flow.
  • Maximizing return on investment: By analyzing cash flow projections, farmers can assess which investments will generate the quickest and highest returns, aligning their spending with overall financial goals.
Beyond March – While March presents a critical time for cash flow planning, the benefits of a cash flow statement extend throughout the year. Join hands with a Surrey accountant like CJCPA by booking the first consultation for free, and enjoy personalized suggestions to improve your agricultural income.

Get Cash Flow Statement - and Future Projections!

Understanding cash flow is vital for any business, but it holds particular significance for farmers in Canada. CJCPA can help your business protect its finances from seasonal Income uncertainties, and grow your money with timely decision-making strategies.  CJCPA is a Chartered professional accountant BC Firm offering its services to a wide range of industries, including Agriculture & Farming. With the first free consultation in place, it helps business owners and farm experts decide if CJCPA is the right fit for their needs.  Let’s have a chat, and find out how our services align with your needs! 
How Can I Get A Government Backed Financing For My Small Business – CSBFP
04 Mar, 2024
 

How Can I Get A Government Backed Financing For My Small Business – CSBFP

Looking for financing options? Here is a $1 million government-backed finance option for you! If you are a small business/ startup, seeking consultation from a Business Planning Solution Canada firm, you would have already learnt about this option – Canada Small Business Financing Program (CSBFP).  Whether you want to buy capital assets like buildings, equipment, or commercial land, or simply want to upgrade existing assets, CSBFP can be the right financing option for you.  Besides, it is that time of the year when the expansion plan of the industry must have already kicked in, and many of your competing businesses might be looking into it. Read the blog further and get answers to these questions – what can I use the funds for, what are the benefits of CSBFP, what’s the borrowing limit, and more?  If you are a business owner looking for an expert opinion on finances, don’t forget to book your first consultation for FREE with a CPA in Surrey Canada. Book Anytime!

What is the CSBFP?

Canada Small Business Financing Program or CSBFP is a government-backed initiative that helps small businesses get loans from banks and credit unions by sharing the risk with these lenders.  The aim of this facility is to increase the availability of financing for starting, expanding, and modernizing small businesses. In the last 10 years alone, more than 53,000 small businesses were given CSBFP loans, amounting to $10 billion in total.

Who is eligible for CSBFP?

The Canada small business financing program requirements are as follows:
  • Your small business/ startup must operate in Canada.
  • The gross revenue of the business/ startup must be ≤ $10 million. 
Not eligible: Farming businesses are not eligible under this program. For them, there is the Canadian Agricultural Loans Act Program.  Consult our Chartered professional accountant for tax savings in your small agribusinesses in Canada. 

How much can you get from CSBFP?

The maximum loan for one borrower is $1.15 million. There are restrictions on the amount of use, as follows: For term loans:
  • A maximum of $1,000,000 is available as a term loan for one borrower.
  • From this amount, you can use up to $500,000 for things like improving leased property, getting new or used equipment, and upgrading your leasehold.
  • From this $500,000, you can use up to $150,000 to cover the cost of intangible assets and working capital.
For lines of credit:
  • Up to a maximum of $150,000.
 

How do I apply for a loan to start a business in Canada?

Apply for CSBFP in five easy steps:
  1. Start by locating a bank, credit union, or Caisse populaire in Canada. Find a CSBFP lender near you.
  2. Next, talk to a financial officer there, share business details and why you need the loan. Add a business proposal of your plans.
  3. After that, the financial officer will review your loan application, and assess the viability of your proposal and your ability to repay the loan.
  4. Finally, if the decision is in your favor, the financial institution will disburse the funds. They are solely responsible for loan approval.
  5. At last, the loan will be registered with Innovation, Science and Economic Development Canada (ISED). 
Things to note:
  • While the program reduces risk for lenders, it doesn't guarantee approval. Your business still needs to meet the lender's eligibility criteria.
  • Maximum loan amounts and specific terms may vary depending on the lender and your business profile.

How much is the registration fee for CSBFP?

  • Term loans: There is a 2% registration fee, based on the total loan amount under the program.
  • Lines of credit: One has to pay a 2% registration fee, based on the total amount authorized.
The borrower must pay the registration fees to the lender only. This amount may be financed. Hire accounting services in Canada to find out how CSBFP can help you with tax savings.   

What expenses are eligible for financing?

You can use the funds for the following expenses:  
Type of Loan Uses & Example
Term Loan
  • Purchase/ upgrade - land/ buildings used for commercial purposes
  • Upgrade/ purchase - used or new equipment
  • Buy new/ existing leasehold improvements -  renovations to a leased property by a tenant
  • Intangible assets and working capital costs
Example: 
  • Commercial vehicles
  • Production equipment
  • Costs to buy a franchise
  • Hotel or restaurant equipment
  • Computer/ telecommunications equipment + software
Line of Credit To pay for working capital costs, i.e., day-to-day business operating expenses.

How much interest do I have to pay on a CSBFP loan?

Type of Loan Interest Rate Borrower Has To Pay
Term Loan Your financial institution sets the interest rates for term loans, which can either be floating or fixed.
  • Floating rate: The highest allowable interest is the lender's prime lending rate plus 3%.
  • Fixed-rate: The highest allowable interest is the lender's single-family residential mortgage rate for the loan term plus 3%.
Line of Credit The highest allowable interest is the lender's prime lending rate plus 5%.
   

For which sector will the Canada Small Business Financing Program offer the best benefits?

For many small businesses and startups in Canada, CSBFP is a great financing option. However, some industries might benefit from it more than others. Here are some good fits for the CSBFP:
  • Retail: To purchase inventory, upgrade equipment, or expand their storefronts.
  • Manufacturing: For buying new machinery, equipment, or materials.
  • Construction: To acquire equipment, vehicles, or materials.
  • Technology: To develop new software and equipment, or buy new products or services.
  • Tourism and hospitality: For renovating a facility, get new equipment, or expand the marketing reach.
These are not the only options. Even if you have a business in any other industry, check if you have a viable business plan and the ability to repay the loan, and reach out to the nearest lender for a CSBFP loan.

Wrapping Up!

We hope that we were able to offer you all the relevant info you needed before applying for the CSBFP, one of the most popular government-backed loans in Canada. To find out how the loan can help you with tax advantages, don’t hesitate to book your first consultation for free with CJCPA.  CJCPA is a Corporate Planning & Compliance Canada firm with 30+ years of experience in corporate accounting, tax filing & preparation, and compliance. We have transformed the accounting of 100s of small businesses and startups in Canada, and we would love to assist you with your finance journey!   
Canada’s 2024 Tax Brackets and Rates: Here’s What You Need to Know
27 Feb, 2024

Canada's 2024 Tax Brackets and Rates: Here’s What You Need to Know

Tax season's rolling in, and you know what that means – the annual update to Canada's tax brackets and rates. Staying in the loop on these updates will help you make the best of accounting services in Canada. Just a quick heads-up –  tax brackets are adjusted every year as per the inflation, making sure we keep up with the ever-changing cost of living. This year also, the tax brackets have been indexed by 4.7%, meaning they've risen to accommodate inflation. The good news? After the 2024 tax bracket changes, more income is falling into lower tax brackets, potentially leading to lower taxes for many Canadians. So, how will the new changes impact you? This article is here to help you find out.  Before you read further: Don’t forget to book your first consultation with Chartered professional accountants at CJCPA for free. 

WHAT IS A TAX BRACKET?

People don't pay taxes on their entire income at one rate. Instead, the income is divided into different levels called tax brackets, and each bracket has its own tax rate.  So your money goes through these levels, not sticking to just one rate.  Tax brackets are like tiers of income, and higher rates apply as your income goes up. These tax brackets get adjusted each year based on the consumer price index, and the rates represent the percentage of income that goes to regional and federal governments.  These tax rates apply to the taxable income. It is the figure that arrives after the original income goes through deductions, credits, and exemptions. In Canada, there is a marginal tax rate system, meaning that the more you earn, the higher the income tax rate. The federal government sets the federal income tax rates, but each province and territory can decide their own rates. These provincial and territorial rates are added on top of the federal amounts.

Key Tax Brackets (2024 vs. 2023)

  Below are the 2024 federal income tax rates, compared with rates for 2023 as well. These rates will apply to your taxable income, which is the income left post deductions, credits, and exemptions. If you don’t want to miss on the the tax credits, deductions, and benefits available, consult Tax Accountant Surrey for a professional opinion.  
Federal Tax Rate  Tax Brackets
2024 2023
15% $55,867 or less $53,359 or less
20.5% $55,868 - $99,849 $51,909 - $93,572
26% $99,849 - $156,497  $93,572 - $149,438
30% $156,497 - $221,758 $149,438 - $216,511
33% Over $221,758 from $216,511
  The list of 2024 provincial tax brackets is available here. As you can see, the increases vary across the brackets. While everyone benefits from the indexation, those falling within the lower to mid-income brackets might experience a more noticeable reduction in their tax liability. Apart from these changes, the personal basic amount, a non-refundable tax credit, also received a bump, rising to $15,532 in 2024. Think of it as a flat tax reduction applied to everyone's income.

What’s the impact of Canada's NEW tax brackets? 

The increase in tax brackets, thanks to inflation, means that more income falls into lower tax brackets. That's a win for a significant portion of Canadians, especially those in lower to mid-income brackets. However, if your income has increased beyond the new bracket thresholds, you might end up with a bigger tax tab. Thus, potentially increasing your tax bill. Good news – the big leagues, the top tax bracket, are holding steady. So, the high-income earners won't see a direct impact on their tax rate due to the bracket changes. While the overall impact is positive, navigating the changes and understanding their individual implications can be complex, especially for those with intricate tax situations. Consult a CPA firm for personal Tax filing Canada for these circumstances. 

Thinking Beyond Numbers: Basic Strategies For Tax Planning In 2024

  Tax season is more than just paperwork. It's a chance to map out your future. Check out these quick tips:

Maximize Deductions and Credits 

Research and understand the deductions and credits available to you. Keep detailed records of any expenses you believe might be deductible. For this, you can think of receipts, invoices, and bank statements among others.  Things like RRSP contributions and medical expenses can seriously shrink your taxable income.

Consider Tax-Saving Investments 

Ever checked out RRSPs and TFSAs? They're like secret gardens for your investments, where they can grow tax-free. Plus, it's not just about stuffing cash in there – match your investment game plan with your life goals, whether it's cruising into retirement or scoring that dream home down payment.  Consider your current and expected future tax brackets to determine which option offers the most significant tax savings.

Plan for Future Changes

Anticipate potential income fluctuations or life events that might impact your tax situation in the coming years. If you expect a promotion, job change, or other income boost, estimate the new bracket you might fall into and understand the potential tax implications.  Early planning can help you adjust your strategies accordingly. Don’t shy away from consulting Business Planning Solution Canada firms, if you are saving up money for a startup.

Keep Up With The Changing Times

Remember – Knowledge is power when it comes to understanding taxes. When you are up-to-date with the changes in Canada's tax brackets and rates, you’ll be easily able to take advantage of deductions and credits. More so, planning your future will be easier, and you’ll be able to approach the tax season with confidence. You got this! CJCPA is a Canada-based Personal tax accountant Surrey firm that specializes in tax planning and filing for individuals and small businesses in Canada. Our combined experience of 30+ years makes us well-versed in the accounting, financial, and taxation changes in the country.  Book your first consultation with our experienced CPA, and discuss your tax troubles for free. Visit our website for more such latest updates in the finance landscape.  
Important Tax Updates, Tax Breaks, and Tax Credits You Must Not Miss in 2024
23 Feb, 2024

Important Tax Updates, Tax Breaks, and Tax Credits You Must Not Miss in 2024

Although the CRA hasn’t introduced any major new tax credits for 2024, there were some technical updates and minor adjustments.  Therefore, it becomes important to check out these adjustments and revisit some of the most common tax breaks you may want to discuss with your accountant or tax preparer.  That’s why, this article is here to help you make an informed decision when you search for a “Chartered Professional Accountant near me” and schedule your next meeting.  Find out what’s best for your unique circumstances, and don’t forget to book a free consultation with a CPA at CJCPA.  

Major Changes To Taxes in 2024

While there weren’t any new tax credits introduced this year, there were several crucial changes made to Canadian tax codes for the 2024 tax season. Although these changes won't impact your tax returns for 2023, they might influence your financial outcome when you file taxes the following year. Here are some important changes that will impact your taxes in 2024, as outlined in the latest report from the Canadian Taxpayers Federation.  

NEW RULES FOR BARE TRUSTS

What is a bare trust?

A bare trust is a special type of trust where the person in charge (trustee) only follows the instructions of those who benefit from it (beneficiaries).  The trustee legally owns the property, but the beneficiaries have the actual ownership and full control over what the trustee does with the property. Traditionally in Canada, bare trusts didn't have to submit a trust return for tax purposes. This is because of the way they are taxed, allowing the transfer of property without causing tax events, as long as there's no change in who ultimately owns and benefits from the property.

New trust reporting requirements for T3 Returns

  For tax years ending after December 30, 2023, trustees of bare trusts are required to file T3 trust returns every year. This means that one has to file information on stakeholders such as:
  •  Trustees
  •  Beneficiaries
  •  Anyone who can influence the trust
Since the change will apply to next year's tax season, trustees and beneficiaries of bare trusts should become acquainted with the new requirements. Get in touch with Corporate Planning& Compliance Canada firms to find out the scope of new regulations with your trust.

Other Noticeable Changes

Higher federal income taxes

Because of the growing payroll taxes, Canadian workers will experience a rise in their federal income taxes.  Although the increases are not substantial, they signify a gradual shift in tax brackets. The additional amount you can anticipate paying in federal income taxes next year depends on your income.
  •  $30,000 - $9 more tax
  •  $40,000 - $12 more tax
  •  $50,000 - $15 more tax
  •  $60,000 - $18 more tax
  •  $80,000 or more - $347 more tax

Increase in maximum pensionable earnings (CPP)

The maximum pensionable earnings for CPP will rise from $66,600 to $68,500.  This hike will result in a $113 CPP tax increase for both employers and employees in the 2024 tax year.

Increased Employment Insurance (EI) tax rate

In 2024, both workers and employers will be facing increased EI taxes. Employees will be shelling out $1,049 in EI taxes, based on a maximum insurable earnings cap of $63,200. This marks a $47 bump from the 2023 tax year.

Increased carbon and alcohol taxes

Starting April 1, 2024, the carbon tax is going up from $65 to $80 per tonne. That translates to taxpayers dishing out 17.6 cents per liter of fuel at the pump, up from the previous rate of 14.3 cents per liter. Furthermore, in 2024, the government is planning to hike alcohol taxes by 4.7 percent. The Canadian Taxpayers Federation anticipates that this booze tax bump will end up costing Canadians a whopping $100 million.

Common Tax Advantages to Claim in 2024

Basic Personal Amount (BPA)

The Basic Personal Amount (BPA) is a non-refundable tax credit in Canada that reduces the amount of federal income tax you owe. It's essentially a tax-free amount of income that everyone gets.  The Purpose of BPA is to provide tax relief to all individuals, especially those with lower incomes. BPA for the 2023 tax year is $15,000. Any taxpayer can claim this non-refundable tax credit, providing a great opportunity to cut down (or even wipe out) your income taxes. If you make less than $15,000 a year, you don't have to pay federal income taxes because you earn below a certain limit. But if you make more than $15,000, you can still reduce the amount of taxes you owe by using something called the basic personal amount. Let's say you make $60,000. With the basic personal amount, you can subtract $15,000 from your income. This means you'll only have to pay taxes on the remaining $45,000 instead of the full $60,000. It's a way to hang on to more cash in your pocket!

Home Buyers Amount

Started in 2009, the Homebuyers' Amount is for two groups of people: those who are disabled and those who are buying a home for the first time. They can claim a non-refundable tax credit of $10,000. However, there's a condition – they must have purchased a qualifying home that fits into these categories:
  •  Single-family house
  •  Condominium
  •  Semi-detached house
  •  Mobile home
  •  Apartment in duplex, fourplex, triplex, or apartment building
  •  Townhouse
If you bought a home recently and haven't claimed this tax benefit yet, you can still do it retroactively. For a home bought in 2021 or earlier, you're eligible to claim a $5,000 credit. For a home bought in 2022 or 2023, you have the opportunity to claim the full $10,000 credit. This means you can get a tax break for your home purchase even if you didn't apply for it right away.

Home office Expenses

The percentage of work-from-home Canadians has tripled since 2010. While working from home comes with several perks and benefits, it also comes with increased home office expenses. As a small business owner, you can write off several home office expenses. Besides, work from home employees can also get credit for their extra expenses, such as:
  •  Utilities (electricity, heat, water)
  •  Home internet fees
  •  Rent paid for your home
  •  Maintenance and repair costs
In late January 2024, the CRA released an updated home office expense sheet to make calculating your deductions easier. If you are a work-from-home employee, be sure to check it out.  

Moving Expenses

  In the third quarter of 2023 alone, 17,186 people left B.C. for another province or territory. Many Canadians are migrating out of cities like Vancouver and Toronto due to the high cost of living. The good news is that if you move more than 40 kilometers away and move to accept a new job, work position, or school, you can deduct many of your associated moving costs.   Note: If you are moving in or out of B.C., you must get a free consultation with a Tax accountant Surrey, to discuss the process of claiming moving expenses.  

How can I make the most of tax breaks?

  Thanks to user-friendly and affordable e-filing software, doing your taxes has become a breeze. However, the downside is that many taxpayers miss out on fully utilizing available tax credits. That’s when CJCPA steps in! Our Personal and corporate accounting services include tax filing and tax preparation, where we ensure that you can take advantage of all the tax breaks and credits possible. Our combined experience of 30+ years gives us an edge in the finance industry.  Schedule your free consultation with a Chartered professional accountant at CJCPA now, and experience the difference yourself! Don’t forget to subscribe to our newsletter for more such tax updates.   
3 Things to NOT Miss When Filing Your Corporate Tax Return (T2) in Canada – 2024 Edition
21 Feb, 2024

3 Things to NOT Miss When Filing Your Corporate Tax Return (T2) in Canada – 2024 Edition

The new year's sparkle has probably faded, and the looming shadow of tax season is making itself known.  By February end, the businesses have to file their T4s (wages) and T5s (dividends), and the general deadline for filing corporate income tax returns (T2) is also close. Beyond forms and deadlines, it is also the time for tax planning and the 2024 budget.  At this time of the year, consulting a CPA in Surrey Canada for tax planning, filling, and professional opinion becomes non-negotiable.  Apart from heading to a CPA, there are additional things you can do to make corporate tax filing a stress-free event. Read further to find out the 3 things every business owner in Canada must not miss when filling out their tax returns.

  • All Important Deadlines For Businesses

Don't miss the filing deadline!  Typically, corporations must file their return 4 months after the fiscal year-end. Remember, late filing penalties accrue quickly, so prioritize timely submission. One must also avoid late-filing penalties, as these can accrue daily at 5% per month, up to a maximum of 15% of the outstanding balance. So, the sooner the filling is done, the less likely it is to get a fine. Besides, CRA can process your return and assess any refund quickly. This becomes crucial for businesses dependent on tax refunds to manage cash flow. Completing it early will relieve you from the pressure of an impending deadline and the risk of potential penalties.  
Dates Event
February 28, 2024 Corporations must submit their GST/HST returns for the preceding quarter (October-December 2023) by the deadline.
February 29, 2024 Businesses must meet the deadline for filing T4s (wages) and T5s (dividends).
April 30, 2024 Corporations are required to submit their payroll source deductions returns for the preceding year (2023) by the deadline.
June 30, 2024 The general deadline for submitting corporate income tax returns (T2) applies to businesses with a year-end of December 31.*
  *The deadline can vary depending on your fiscal year-end, so remember to check your specific date. Note: Look for “accounting services near me” to find out if more deadlines are approaching that apply to your business. 

  • Deductions and Credits

  Picture this: You're investing your passion and dedication into growing your business. Every penny matters, and the approaching tax season can sometimes cast a bit of gloom. But what if there were legal and awesome loopholes specifically designed to reward your hard work and innovation?  That's where deductions and credits come in. Think of them as secret cash-back programs for responsible business owners.  Do you invest in R&D? Boom! Grab those SR&ED (Scientific Research & Experimental Development) credits to cover the expenses of those brainstorming sessions that sparked your next groundbreaking product. Are you making sure your equipment stays in top-notch shape? Great! Leverage CCA (Capital Cost Allowance) to systematically depreciate its cost and reduce your taxable income over time. Remember that time you took the plunge with eco-friendly packaging? There might be a sweet tax credit of ITC (Investment Tax Credit) waiting for you.  Running a lean, mean, Canadian machine? Embrace the Small Business Deduction (SBD) – it's here to support you! Trim down your taxable income by as much as $500,000, providing a financial uplift to your small business and alleviating the tax load. Keep in mind that the goal is not to deceive the system. It's about playing the game smart. Utilize the tools available to your advantage, understand the rules, and watch those tax bills shrink. Talk to a Chartered Professional Accountant near you to ace this game!

  • Accurate Financial Records

Accuracy vs. Audit Anxiety – It is that time of the year when our anxiety about audits can take over our routine. So, Don't let incomplete records turn your tax season into a horror movie!  Your financial records are the bedrock of your return, and here's how you build a castle of financial accuracy:
  • Double-check everything: From invoices to bank statements, scrutinize every number with eagle eyes. Typos and miscalculations can be costly, so cross-check your entries and reconcile accounts regularly.
  • Categorize like a Champion: Organize your records by transaction type - income, expenses, deductions, and credits. Think of spreadsheets, folders, or even color-coding. Clarity is key when the CRA comes knocking.
  • Backup & Preserve: Embrace digital copies! Scan crucial documents like receipts and invoices, create secure backups, and ditch the paper-trail panic. Cloud storage is your friend for disaster-proof peace of mind.
  • Follow the Paper Trail: Keep every relevant document, be it invoices for equipment purchases (CCA), logs for R&D projects (SR&ED), or receipts for sustainable upgrades (ITCs). Don't leave the CRA guessing!
  • Stay in the System: Integrate your accounting software with tax filing platforms. Automatic data transfer saves time and minimizes errors. Think of it as building a financial bridge to smooth sailing during tax season.
Having everything organized and readily accessible not only saves you stress but also ensures you claim every rightful deduction and credit. Roping in professionals for Corporate Planning & Compliance Canada will help you be sure about the documentation requirements, 24X7, 365 days. 

Think Professionally For Corporate Tax Filing Canada in 2024

Keep an eye out for recent tax changes! The Canadian government updates tax rules periodically, so familiarize yourself with any new deductions, credits, or filing requirements that may apply to your 2024 return. Or, you can focus on your core business, and leave the paperwork to experts at CJCPA. We have 30+ years of combined experience in offering Business Planning Solution Canada.    Filling hassle-free T2 tax returns while saving the maximum amount on taxes for our clients is something we are proud of. Get your free 30-minute consultation with an expert CPA and find it out yourself!
Business Owners: Watch Out For These 4 Tax Changes in 2024 in Canada
19 Feb, 2024

Business Owners: Watch Out For These 4 Tax Changes in 2024 in Canada

New year, new tax measures — there are many things to expect in 2024. Starting soon, you'll have to file your taxes online, trusts will need to be more open about their information, and using clean technology can earn you some good tax deductions. That's just scratching the surface. There are more details to find out! Watch out for these 4 latest tax changes that will affect your pocketbook in 2024 listed in our blog. Also, check out our blog section regularly for the latest updates on canadian tax news. Before you read further: CJCPA offers businesses their first consultation free of charge! Take advantage and plan your taxes correctly with an expert CPA, only at CJCPA!

1. Mandatory Electronic Filing Thresholds

New Tax Change & Impact

Beginning January 1, 2024, if you file six or more information returns you must file them electronically. Non-compliance will invite penalties.

Explanation: 

New rules have changed the requirements for submitting certain forms. Starting from January 1, 2024, if a business submits six or more information forms (like slips and summaries), they must do it electronically.  Before, if a business had 50 or fewer forms, they could send them on paper, but now that option is gone. If a business is submitting five or fewer forms, they still have the choice to send them on paper.  Examples of these forms include:
  • T3 (trust income)
  • T5 (investment income)
  • T4 payroll return (remuneration paid) 
  • T4A (pension and other income return)
Note: Find out the Penalty based on the number of information returns (slips) here. 

2. New Reporting Requirements for Trusts

New Tax Change & Impact

Trusts with tax years ending after December 30, 2023, must file a T3 Return with Schedule 15 (Beneficial Ownership Information). Trusts have to be more transparent and compliant with international commitments.

Explanation:

Starting in 2024, Canadian trusts face new reporting requirements aimed at boosting transparency. Most trusts must now file an annual T3 Return with the CRA, along with Schedule 15 detailing beneficial ownership information like names, addresses, and tax IDs for trustees, beneficiaries, and others with control.  Notably, even "bare trusts" previously exempt from filing are now caught under the net. Schedule 15 delves deeper, requiring information for reportable entities who existed during any part of the tax year, even if they're no longer involved at year-end. Exemptions are scarce, with only "listed trusts" spared from Schedule 15.  Failure to comply can result in hefty penalties, though CRA may grant relief in unforeseen circumstances. We suggest you to seek professional help for T3 and Corporate Tax filing Surrey Canada to stay compliant. 

3. Changes in Canada Pension Plan

New Tax Change & Impact

Canadian businesses will owe higher tax remittances due to new CPP2 contributions on employee earnings above $68,500 starting in 2024.

Explanation: 

The Year's Maximum Pensionable Earnings (YMPE) is the highest income that regular CPP contributions apply to. It increases to $68,500 in 2024 from $66,600 in 2023.   Year's Additional Maximum Pensionable Earnings, or YAMPE is a new ceiling, introduced in 2024, which defines the income range for additional CPP2 contributions. YAMPE is set at $73,200 in 2024, approximately 7% higher than the YMPE. This will be 14% higher in 2025 and future years. Employees and employers will both contribute 4% of earnings between the YMPE and YAMPE as CPP2 Contributions. This means businesses will need to withhold and remit additional CPP2 contributions from employees earning above $68,500.

4. Mandatory E-Filing of GST/HST Returns

New Tax Change & Impact Starting in 2024, if you're a business registered for GST/HST (except charities and certain financial institutions), you must submit your tax returns online for reporting periods. E-filing will save time, reduce errors, and improve data analysis for both businesses and the government.

Explanation: 

Filing your GST/HST returns online (GST34) isn't just an option—it's mandatory for certain businesses in Canada. In following situations, e-filing is compulsory: For Builders:
  • No Exceptions: No matter how much you sell in a year, if you're in the construction business, e-filing is your go-to.
  • Special Cases: Certain situations require even builders to be extra diligent with online filing. This includes reporting recaptured input tax credits (RITCs), claiming provincial new housing rebates, reporting transitional tax adjustments, and selling grandparented housing above $450,000 (including any other taxable supplies to the buyer). Additionally, if you sell HST-subject housing you purchased on a grandparented basis, online filing is mandatory.
For Non-Builders:
  • Million-Dollar Mark: While builders always file electronically, non-builders only need to go digital if their annual taxable supplies surpass $1.5 million.
  • Recaptured Input Tax Credits (RITCs): If you need to report RITCs, regardless of your business type, online filing is the way forward.
Remember:
  • Exceptions Exist: Selected listed financial institutions, even if they fall under the categories mentioned above, are exempt from mandatory e-filing.
  • Penalties Lurk: Don't ignore the e-filing requirement! Failing to file electronically can lead to unpleasant consequences.
  • Paper Options for Rebates: While filing your returns online is preferred, if your rebate application doesn't have an electronic option, you can mail it along with your online return.
E-filing isn't just mandatory for some—it's a smart choice for everyone! It's faster, more convenient, and reduces errors and penalties. Plus, it offers a secure and easily trackable record of your compliance.

Stay On Top Of Taxes With CJCPA

  Proactively manage the finances of your business and adapt easily to the ever-changing market conditions with CJCPA. Our experts here have been in the tax business for more than 30 years. We have made Corporate Tax filing Canada simple for businesses, trusts, and individuals alike. From our FREE 30-minute consultation with a CPA in Surrey Canada, you’ll find out how much are you missing on credits, and how easy it is to file taxes. Keep yourself informed of all the Canadian tax news with our blogs, and don’t forget to book your free consultation from our website.  
Trusts In Canada: What Are They And How To File A Trust Return (T3)?
16 Feb, 2024

Trusts In Canada: What Are They And How To File A Trust Return (T3)?

This year, trust returns are hotter than maple syrup on Canada's tax scene.  Why?  The rules for filing annual T3 Trust Income tax returns have changed.  Unless they meet specific conditions, all trusts must provide a T3 return along with the beneficial ownership information annually for a taxation year ending after December 30, 2023. Also, the bare trusts may have to file a T3 Return annually.  Due to this regulation, many trusts that were not filing their returns previously may not have to file their T3 returns annually. Given that trust returns are due for filing in March, it becomes important to go through all the details regarding how T3 returns work in Canada. Give this blog a read to find out if you have missed out on anything for filling your T3 tax return this year. Before you read further: Don’t forget to book your free consultation with a CPA in Surrey Canada for filing trust returns. Establishing a trust for the first time… no worries, CJCPA will help you! 

What do we mean by a “Trust” in Canada?

In Canada, a “trust” is a legal “relationship”.  This relationship is between the settlor (the one who will transfer its assets), the trustee (the one who is responsible for managing these assets), and the beneficiary (the one who will benefit from these assets). Understand it better: You can think of it as a locked box with someone (trustee) holding the key and instructions (trust deed) on how to manage the contents (assets) for the benefit of others (beneficiaries).

How is a trust different from a corporation?

vs.   Of course, both can hold assets and conduct transactions. However, certain key differences set them apart:

Separate Legal Entity

A corporation is legally a separate entity from its owner (shareholders). Trusts, on the other hand, are not. Trust is simply a legal relation between different parties, and the assets technically belong to the beneficiaries, not the trust.

Purpose

The primary purpose of corporations is to do commercial activities and generate profits out of them. However, trusts can have many purposes for which they were founded.  For example, wealth management, inheritance planning, tax reduction, and charitable giving, are some of the reasons why trusts are established.

Management

A board of directors or officially appointed officers manage a company. However, trusts don’t run like that. The appointed trustee manages the assets as per the guidelines of the trust deed.

Transparency

Of course, there are stricter reporting rules for corporations for shareholders and the public. On the other hand, trusts generally operate more privately, though beneficiaries have the right to information.

What are the different types of trusts available in Canada?

  Trusts are not separate legal entities like corporations, but that doesn’t mean that they don’t have any legal obligations. They may have to pay taxes under Canadian law. There are two main types of trusts in Canada:

Testamentary Trusts:

Think of them as "after-death trusts." It acts like a will, where it mentions how an asset under the trust will be managed, or how a beneficiary will receive the benefit, once the settlor has passed away. “Like giving instructions in a letter about how to divide your belongings after you're gone.” Providing for minor children until they reach adulthood, caring for someone with a disability, and distributing assets in a specific way according to the testator's wishes, which might differ from the rules of inheritance, are some of the common uses of Testamentary Trusts.

Inter-Vivos Trusts:

Imagine these as "living trusts."  Also known as living trusts, inter-vivos trusts are legal arrangements one creates while they are still alive to manage the assets and distribute them according to their wishes after they pass away, or even during their lifetime. “One may give away some of their belongings when they are alive, and set up rules for how the beneficiary can use them, even when the giver of the assets is alive.” Where are they used commonly: When you want to avoid probate and make transferring of assets easy, protect your assets from lawsuits or creditors, minimize your taxes with income splitting, or plan your future in case you are incapacitated. Note: These are the major categories of trusts. There are 4 types of Testamentary trusts and 30+ types of inter-vivos trusts. Check out the official link to learn more about different types of trusts in Canada If you wish to leverage the benefits of trusts as an individual or businessperson, then you must familiarize yourself with different types of trusts. 

How do I file a return on trust: The T3 tax returns?

Unless they meet specific conditions, all trusts must provide a T3 return along with the beneficial ownership information annually for a taxation year ending after December 30, 2023. This includes bare trusts and those with no taxable income.

Who needs to file: Generally, you must file a T3 return if your trust:

  • Is tax payable or it is requested to be filed by the CRA.
  • Has disposed of or deemed disposed of a capital property in Canada.
  • Is a non-resident trust with taxable capital gains or has disposed of taxable Canadian property.
  • Is a deemed resident trust.

Required documentation:

  • Form T3RET: Trust Income Tax and Information Return
  • Guide T4013: T3 Trust Guide
  • Supporting documentation – income and deductions
  • Trust account number (if available)
  • Web access code (WAC) for online filing (if available)

Reporting on the T3 Return:

  • Complete the T3RET form, reporting all income, deductions, and beneficiary information.
  • Schedule 15: Beneficial Ownership Information of a Trust, must be completed for most trusts, disclosing beneficial ownership details.
  • File the return electronically or paper-based.

Penalty for non-compliance:

What are the benefits of having a trust in Canada?

Establishing trust is a smart strategy. It helps you lower the tax burden, make a strategy around asset transfer, and also safeguard your assets from potential threats, such as lawsuits and creditors. With trust, you secure the financial future of your next generation. Time and again, business owners have established a trust to deal with their wealth. Find out if a trust might be the right choice for you.

Benefits of Trusts:

Estate Planning:
  • Control & Flexibility: One can dictate how assets must be distributed and used, even after they pass away. You can set how the beneficiaries will receive the benefit, how it protects the minors, and how the funds will be used.
  • Avoid Probate: Trust is an effective strategy against the time-consuming, costly, and complex process of probate. Also, you don’t have to deal with public disclosure.
  • Reduce Taxes: Also, a trust can even split the income it generates among its beneficiaries in lower tax brackets. This strategy helps minimize the overall tax burden.
  • Protect Assets: If you establish the trust with proper safeguards, you can protect your assets from creditors, lawsuits, and remarriage issues.
Other Benefits:
  • Charitable Giving: Trusts can facilitate planned giving and ensure specific charities receive designated funds.
  • Disability & Creditor Protection: Trusts can manage assets for beneficiaries with disabilities or protect them from creditors.
  • Business continuity: Trusts can hold business assets to ensure succession and smooth operation.
Tax Implications:
  • Trust Tax Rates: Tax rates of trusts, depending upon their type, could range anywhere between 15% to 33%.
  • Income Taxable to Trustees or Beneficiaries: Given the type or conditions of the trust, you can also distribute a part of the trust income to beneficiaries. However, note that this will impact the beneficiary’s individual tax brackets.
  • Capital Gains Tax: Trusts pay capital gains tax on disposed-of assets at individual rates.
  • Deemed Dispositions: Certain events like settlor death trigger "deemed dispositions" where assets are revalued and potential capital gains taxed.
Tax Planning Strategies:
  • Income Splitting: Allocate a part of the overall income to beneficiaries in lower tax brackets that justifies their work at the trust. Through this, you’ll reduce the overall tax burden.
  • Capital Gains Deferral: Use specific trust types to defer capital gains tax on specific assets.
  • Charitable Donations: Utilize trusts for tax-efficient charitable giving through qualified donation funds.
Disclaimer: This blog intends to offer helpful information. Thus, no part of it should be construed as legal advice. For more information, kindly consult a Corporate Tax filing Canada firm.

Wrapping Up!

You cannot downplay the need to learn how the trust return filing process works and what are the tax implications if you are related to one. Also, don’t forget that the new trust reporting rules have been introduced, on top of the already complex taxation and legal scenario around the Trusts. This is why it is more important than before to check if you are compliant with the filing requirements. To avoid potential penalties and legal issues, while gaining the maximum benefit of having a trust, you can contact our expert team at CJCPA. Experts here have 30+ years of dealing with the filing process of trust income and taxes.  Book your FREE CONSULTATION with a CPA in Surrey Canada to protect your assets and minimize tax blow with expert intervention.   
Search
Recent Post
23 Apr, 2024
How can you pay less taxes in Canada as a business owner?
08 Apr, 2024
How to Pay Yourself from a Corporation in Canada?
01 Apr, 2024
Corporation vs. Sole Proprietorship: What is best for your business in Canada?
Search
Get In Touch

Don't Hesitate To Send Your Message To Us

    Copyright 2024 CJCPA All Rights Reserved.