Using your Personal Exemptions

Every tax paying Canadian has a Personal Exemption, called the Basic Personal Amount on the Tax Return. The Federal Personal Exemption for 2009 is $10,320 and the Provincial Personal Exemption for 2009 is $16,775. This means you can make up to $10,320 without paying any Federal Tax and $16,775 without paying any Provincial Tax. If one spouse makes less than either personal exemption then the higher income earning spouse can claim the other spouses’ unused portions of the exemptions. In the case where one spouse has no income, the other spouse may claim the full exemptions of the other spouse. Also for single parents, you may claim your child as an “equivalent to spouse” and claim double exemptions both provincially and federally. Using the Personal Exemption is key in tax savings, and if the couple has a corporation that is the main source of income then there is flexibility on how much income and what type of income each spouse is given.

Ways to Save on Tax for Self-employed and Business Owners

• Deducting Business Expenses: You can deduct any and all expenses that you incur for your business. These expenses can be in the life of the corporation, or before the incorporation.
• Use Dividends: Dividends are very tax effective. Dividends come out of the retained earnings, which is after the Corporation has already paid tax.
• Make spouses and dependents over 18 shareholders of the corporation: This makes it easy to split income in the form of dividends.
• Utilize Private Health Service Plans (PHSPs). These plans allow you to deduct 100% of your medical expenses through your company. You can also use PHSPs to pay for family members and employee’s medical expenses.

These are just some of the ways you as a self-employed individual or business owner can save tax. There are so many other ways to be able to maximize your tax deductions and credits. Remember, it is always best to see a tax professional to help you with your tax planning.

Best,
Michael Lepitre