For example, if you have too many write-off’s and bring your income low, this will save you tax.  However, it may negatively affect your ability to borrow money.  Tax Credits are most effective in this case as they save you tax without bringing down your income.

As I’ve mentioned before, it is best to seek the help of a professional to make sure that all aspects of your finances are taken into consideration.

CPP, OAS and/or other pensions:  Pension income can be split to lower the couple’s overall taxes paid. You can split pensions and CPP but not OAS.

RRIF (Registered Retirement Income Fund):  RIFFs are treated as pensions in that they can be split between spouses.  Currently, RRIFs have a mandatory annual withdrawal with tax consequences. 

CLAWED BACK OAS:  If you, as a retiree, make too much income, CRA will claw back some of your OAS.  The higher the income, the more that is clawed back.

INVESTMENTS MADE THROUGH CORPORATIONS AND TRUSTS:  If you don’t need the income, investing through corporations and trusts is a way to avoid the personal tax and claw back consequences.

TAXES UPON DEATH:  The biggest tax consequence for a retiree is taxes upon death.  Tax planning for taxes upon death is part of an estate plan.

• REAL ESTATE:  Usually income will be rental income (similar to business income) or Capital Gains.  Remember only 50% of Capital Gains are taxed.  The Capital Gain of selling your Personal Residence is exempt from taxes. 
• PAPER:  Usually paper investments such as bonds and other notes produce interest income.  Interest income is taxed at the highest rate of all investment income.  It is important to ensure that you are making a good rate of return on interest to make the after tax amounts worth it.
• BUSINESS:  Usually business investment is in the form of Dividends and Capital Gains such as stocks purchased in a public company.  Both Dividends and Capital Gains have preferential tax treatment. 

Once a corporation is set up, an annual return must be filed every year with the provincial government.  This is a small cost, but must be done every year or the Corporation will be dissolved.  Annual returns must not be confused with Corporate Tax Returns.

Another key factor in setting up a corporation is getting a Business Number.  All Corporations require a Business Number.  A Business Number (BN) is simply a numbering system used by the CRA to track your business.  It is based on the idea of one business, one number.  The BN consists of two parts – the Business Number and the account identifier.  The entire number has 15 characters – 9 digits to identify the business and 2 letters and 4 digits to identify each account a business may have. Not all Sole Proprietorships require a business numbers.  Only those who need to collect GST, have a payroll, or import and export need a Business Number.

·          SOLE PROPRIETORSHIP.  This is a type of business entity which legally is not separate from its owner.  Taxes for this type of business are paid on the individual’s personal income tax return.  The sole proprietorship is good to use for smaller home-based businesses or businesses that are unsure if they will make over $35,000.

·          CORPORATION.  A corporation is a legal entity used to conduct business.  Corporations exist as a product of corporate law and their rules balance the interests of the shareholders and the employees.  This type of business pay a lower tax rate than most individuals.

·          HOLDING COMPANY.  A holding company is a company that owns part, or all majority of other companies’ shares.  It usually refers to a company which does not produce the goods or services itself,  Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies.

·          INTERNATIONAL BUSINESS CORPORATION. This is an offshore company formed under the laws of some jurisdictions as a tax-free company which is not permitted to engage in business within the jurisdiction it is incorporated. 

·          TRUST. A trust is an arrangement whereby property is managed by one person for the benefit of another.

·          LIMITED PARTNERSHIPS. This is a form of partnership that has both a General Partner who runs the business and Limited Partners who put in the capital. 

Proper structuring is your first step to building a successful business so make sure you consult with a professional on which structure bests fit your business and personal goals. 

Here are the many ways for the self-employed and business owner to save on tax:

• Structuring
• Deducting business expenses
• Use dividends
• Make spouses and dependents over 18 shareholders of the corporation
• Pay family members wages
• Utilize shareholder loans
• Utilize Private Health Service Plans (PHSPs)
• Always stay under the “Small Business Deduction Limit”

I’ll be writing more about these tax saving strategies for the self-employed and business owners in my next blogs.  Check back here next week!

• RRSPs (REGISTERED RETIREMENT SAVINGS PLAN).  The contributor is the person who puts the money in and gets the tax benefit, and the annuitant is the person whose account the RRSP contribution goes to.  Simply have the spouse who needs the tax deduction make the RRSP contribution.
• CHILD CARE EXPENSES can be allocated to either spouse.
• MOVING EXPENSE  can be allocated between spouses depending on how much income each one has.
• INTEREST & CARRYING CHARGES.  Money borrowed to invest should be borrowed by the spouse who is going to claim the income.  Couples can also share the deduction by both being on the loan or line of credit.

If your spouse has no income, you can claim them as your dependent.  This allows you to claim all of his/her personal exemptions.  If you are a single parent, you can claim your child as an eligible dependent giving you the equivalence of your spousal personal exemptions.