Andrews & Co. Chartered Accountants wrote an excellent article concerning the automobile deductions:
2009 Automobile Deductions
On December 30, 2008, the Department of Finance announced that the automobile expense deduction limits and prescribed rates for the automobile operating expense benefit for 2009 will remain at the 2008 amounts. As set out in the press release:
A) The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2008.
B) This ceiling restricts the cost of a vehicle on which CCA may be claimed for business purposes.
C) The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2008. This limit is one of two restrictions on the deduction of automobile lease payments. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.
D) The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 per month for loans related to vehicles acquired after 2008.
E) The limit on the deduction of tax-exempt allowances paid by employers to employees using their personal vehicle for business purposes for 2009 will remain at 52 cents per kilometre for the first 5,000 kilometres driven and 46 cents for each additional kilometre. For the Yukon Territory, Northwest Territories and Nunavut, the tax-exempt allowance will remain at 56 cents for the first 5,000 kilometres driven and 50 cents for each additional kilometre.
The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating expenses paid by employers for 2009 will remain at 24 cents per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will remain at 21 cents per kilometre. The additional benefit of having an employer-provided vehicle available for personal use (i.e., the automobile standby charge) is calculated separately and is also included in the employee's income.
Wednesday, January 21, 2009
Monday, January 12, 2009
Standard Outline for a Partnership or Shareholder Agreement
The ideal time to reach unanimous agreement regarding how a company is organized, operated, changed or liquidated is before the investment transaction takes place. In order to have a productive meeting, you need an agenda and you need to make decisions; decisions that stand the test of being committed to writing in order to deal fairly with future events and consequences that may or may not occur.
Here are some examples of required clauses in your agreement:
Describe the partners or shareholders and their investments.
Describe the firm's trade name and style of identity.
Describe the nature and scope of business activity.
Identify the official business office address, and phone number.
Establish a date to review the agreement.
Detail each equity contribution and include the terms of each shareholder loan.
Establish all banking resolutions and signing authorities.
Establish the limits for personal guarantee bonds and postponements before negotiating any bank financing.
Establish a dividend policy.
Establish compensation for per diems, bonuses, salaries or drawings for the term of the agreement.
Establish a policy for the inspection of business records and right of audit.
Establish insurance coverage(s) and the indemnification of directors for contingent liabilities of the firm.
Establish provisions for partners or shareholders:
wishing to retire;
withdrawing equity;
settling an estate;
in arbitration of disputes;
expelling a partner;
selling to an outsider.
Establish provisions to evaluate the share of a retiring or deceased partner's interest.
Establish rights and options for surviving or remaining partners or shareholders to purchase the interest.
Establish the terms for restrictive covenants, conflict of interest, and non-competition agreements for partners leaving the firm.
Many simple companies are forged as 50/50 or equal partnerships in order to avoid the less exciting details of a formal agreement and get on with the business. The buy/sell agreement in these situations is usually just a simple "SHOTGUN" clause (possibly named after a wild west version of the Mexican Standoff). In these situations, one party makes an offer and the recipients of the offer can either sell by accepting the amount, terms and conditions, or turn around and buy on exactly the same basis; thereby forcing the offer back to the issuer. This is quick end befitting a quick beginning!
Here are some examples of required clauses in your agreement:
Describe the partners or shareholders and their investments.
Describe the firm's trade name and style of identity.
Describe the nature and scope of business activity.
Identify the official business office address, and phone number.
Establish a date to review the agreement.
Detail each equity contribution and include the terms of each shareholder loan.
Establish all banking resolutions and signing authorities.
Establish the limits for personal guarantee bonds and postponements before negotiating any bank financing.
Establish a dividend policy.
Establish compensation for per diems, bonuses, salaries or drawings for the term of the agreement.
Establish a policy for the inspection of business records and right of audit.
Establish insurance coverage(s) and the indemnification of directors for contingent liabilities of the firm.
Establish provisions for partners or shareholders:
wishing to retire;
withdrawing equity;
settling an estate;
in arbitration of disputes;
expelling a partner;
selling to an outsider.
Establish provisions to evaluate the share of a retiring or deceased partner's interest.
Establish rights and options for surviving or remaining partners or shareholders to purchase the interest.
Establish the terms for restrictive covenants, conflict of interest, and non-competition agreements for partners leaving the firm.
Many simple companies are forged as 50/50 or equal partnerships in order to avoid the less exciting details of a formal agreement and get on with the business. The buy/sell agreement in these situations is usually just a simple "SHOTGUN" clause (possibly named after a wild west version of the Mexican Standoff). In these situations, one party makes an offer and the recipients of the offer can either sell by accepting the amount, terms and conditions, or turn around and buy on exactly the same basis; thereby forcing the offer back to the issuer. This is quick end befitting a quick beginning!
Friday, January 9, 2009
Business Owners - How can you extract up to $32,000 TAX FREE from your Corporation
Business Owners - How can you extract up to $32,000 TAX FREE from your Corporation
Several clients asked me to blog about the different ways of extracting money from their company - Today I will only explain you one technique to take out cash from your company:
Let's take John, a consultant, incorporated under the name John Doe Inc. The company is making 200k of net profit per year - the Corporation will then pay roughly about 16.5% of corporate tax (CCPC - Ontario, fiscal year 2009). John is the sole shareholder of is corporation, John will then have 3 options - he will either take a salary, declare a dividend to himself, a mix of both or he will let a portion of the profit in it's company as retained earnings....
Let’s make it a little bit more complicated, John got married last year with Julie and they are planning to have a baby next year. Then Julie will stop working for 3-4 year to raise the kid.
Did you know that while staying home, Julie could receive up to $32,000 TAX FREE…How is that possible? Well, trough a series of legal and accountant transactions (namely an estate freeze - S.86 Income Tax Act) Julie would then acquire shares in John’s company and John would be able to issue her a dividend … The first $32,000 would be non-taxable for Julie if she qualify under the different conditions of the Act - (email me to know more about these conditions...)
The important part to know is that If an individual does not have any other source of revenues, a shareholder can receive up to $32,000 Tax Free.
As usual, I strongly suggest you consult your own professional advisor before proceeding with an estate freeze.Too good to be true ?? Contact me and I will explain how we can change your corporate structure to ensure that you save taxes!!
Several clients asked me to blog about the different ways of extracting money from their company - Today I will only explain you one technique to take out cash from your company:
Let's take John, a consultant, incorporated under the name John Doe Inc. The company is making 200k of net profit per year - the Corporation will then pay roughly about 16.5% of corporate tax (CCPC - Ontario, fiscal year 2009). John is the sole shareholder of is corporation, John will then have 3 options - he will either take a salary, declare a dividend to himself, a mix of both or he will let a portion of the profit in it's company as retained earnings....
Let’s make it a little bit more complicated, John got married last year with Julie and they are planning to have a baby next year. Then Julie will stop working for 3-4 year to raise the kid.
Did you know that while staying home, Julie could receive up to $32,000 TAX FREE…How is that possible? Well, trough a series of legal and accountant transactions (namely an estate freeze - S.86 Income Tax Act) Julie would then acquire shares in John’s company and John would be able to issue her a dividend … The first $32,000 would be non-taxable for Julie if she qualify under the different conditions of the Act - (email me to know more about these conditions...)
The important part to know is that If an individual does not have any other source of revenues, a shareholder can receive up to $32,000 Tax Free.
As usual, I strongly suggest you consult your own professional advisor before proceeding with an estate freeze.Too good to be true ?? Contact me and I will explain how we can change your corporate structure to ensure that you save taxes!!
Thursday, January 8, 2009
Why Should I Incorporate?
Benefits of Incorporating
(A) Separate Legal Entity
The act of incorporating creates a legal entity called a corporation, commonly referred to as a "company." When a business is incorporated, its separate legal status, property, rights and liabilities continue to exist until the corporation is dissolved, even if one or more shareholders or directors sell their shares, die or leave the corporation. A corporation has the same rights and obligations under Canadian law as a natural person. Among other things, this means it can acquire assets, go into debt, enter into contracts, sue or be sued. A corporation's money and other assets belong to the corporation and not to its shareholders.
(B) Limited Liability
The act of incorporation limits the liability of a corporation's shareholders. This means that, as a general rule, the shareholders of a corporation are not responsible for its debts. If the corporation goes bankrupt, a shareholder will not lose more than his or her investment (unless the shareholder has provided personal guarantees for the corporation's debts). Creditors also cannot sue shareholders for liabilities (debts) incurred by the corporation, even though shareholders are owners of the corporation. Note, however, that if a shareholder has another relationship with the corporation — for example, as a director — then he or she may, in certain circumstances, be liable for the debts of the corporation.
(C) Lower Corporate Tax Rates
Because corporations are taxed separately from their owners, and the corporate tax rate is generally lower than the individual tax rate, incorporation may offer you some fiscal advantages. Canadian controlled private corporations (CCPC) enjoy a lower corporate tax rate. If the corporation is CCPC and qualifies for the small business deduction, the tax rate on the first $400,000 of eligible income (2008 amounts) is only 16.5% (11 % federal tax and 5.5% Ontario tax).
(D) Greater Access to Capital
It is often easier for corporations to raise money than it is for other forms of business. For example, while corporations have the option of issuing bonds or share certificates to investors, other types of businesses must rely solely on their own money and loans for capital. This can limit the ability of a business to expand. Corporations are also often able to borrow money at lower rates than those paid by other types of businesses, simply because financial institutions and other sources of financing tend to see loans to corporations as less risky than those given to other forms of enterprise.
(E) Continuous Existence
While a partnership or sole proprietorship ceases to exist upon the death of its owner(s), a corporation continues to live on even if every shareholder and director were to die. This is because, in the case of a corporation, ownership of the business would simply transfer to the shareholders' heirs. This assurance of continuous existence gives a corporation greater stability. This, in turn, allows the corporation to plan over a longer term, thereby helping it obtain more favourable financing.
(A) Separate Legal Entity
The act of incorporating creates a legal entity called a corporation, commonly referred to as a "company." When a business is incorporated, its separate legal status, property, rights and liabilities continue to exist until the corporation is dissolved, even if one or more shareholders or directors sell their shares, die or leave the corporation. A corporation has the same rights and obligations under Canadian law as a natural person. Among other things, this means it can acquire assets, go into debt, enter into contracts, sue or be sued. A corporation's money and other assets belong to the corporation and not to its shareholders.
(B) Limited Liability
The act of incorporation limits the liability of a corporation's shareholders. This means that, as a general rule, the shareholders of a corporation are not responsible for its debts. If the corporation goes bankrupt, a shareholder will not lose more than his or her investment (unless the shareholder has provided personal guarantees for the corporation's debts). Creditors also cannot sue shareholders for liabilities (debts) incurred by the corporation, even though shareholders are owners of the corporation. Note, however, that if a shareholder has another relationship with the corporation — for example, as a director — then he or she may, in certain circumstances, be liable for the debts of the corporation.
(C) Lower Corporate Tax Rates
Because corporations are taxed separately from their owners, and the corporate tax rate is generally lower than the individual tax rate, incorporation may offer you some fiscal advantages. Canadian controlled private corporations (CCPC) enjoy a lower corporate tax rate. If the corporation is CCPC and qualifies for the small business deduction, the tax rate on the first $400,000 of eligible income (2008 amounts) is only 16.5% (11 % federal tax and 5.5% Ontario tax).
(D) Greater Access to Capital
It is often easier for corporations to raise money than it is for other forms of business. For example, while corporations have the option of issuing bonds or share certificates to investors, other types of businesses must rely solely on their own money and loans for capital. This can limit the ability of a business to expand. Corporations are also often able to borrow money at lower rates than those paid by other types of businesses, simply because financial institutions and other sources of financing tend to see loans to corporations as less risky than those given to other forms of enterprise.
(E) Continuous Existence
While a partnership or sole proprietorship ceases to exist upon the death of its owner(s), a corporation continues to live on even if every shareholder and director were to die. This is because, in the case of a corporation, ownership of the business would simply transfer to the shareholders' heirs. This assurance of continuous existence gives a corporation greater stability. This, in turn, allows the corporation to plan over a longer term, thereby helping it obtain more favourable financing.
Monday, January 5, 2009
SOLE PROPRIETORSHIP - PROVINCE OF ONTARIO
OVERVIEW:
· Sole proprietorships are the most common and simple form of business structure. Under this type of business structure, one person owns the assets of the business and is also personally responsible for its liabilities. The owner can employ others to help in operating the business, but the owner usually manages the business himself or herself. There are few formal legal requirements to establish sole proprietorships, and they are much cheaper to create than corporations. An Ontario sole proprietorship must have its registered business address located within the Province of Ontario.
LEGAL REQUIREMENTS:
· The only legal requirement in establishing a sole proprietorship is to obtain certain licenses which are required for specific types of businesses. These licenses can range from a Vendor's Permit for collection of the Retail Sales Tax to a municipal permit for the operation of a home based business. Licensing requirements vary depending on the specific region in which the business will operate.
· If the sole proprietorship will operate under a business name other than the owner's, the business name must also be registered under the Business Names Act. This registration is relatively simple to complete and must be renewed every five years. Although there is no formal legal requirement to conduct a search of a proposed business name, it is a good idea to do so to be sure that the name which you want to use is not identical or confusingly similar to another business name already registered. This will avoid potential law suits down the road.
· Sole proprietorships are the most common and simple form of business structure. Under this type of business structure, one person owns the assets of the business and is also personally responsible for its liabilities. The owner can employ others to help in operating the business, but the owner usually manages the business himself or herself. There are few formal legal requirements to establish sole proprietorships, and they are much cheaper to create than corporations. An Ontario sole proprietorship must have its registered business address located within the Province of Ontario.
LEGAL REQUIREMENTS:
· The only legal requirement in establishing a sole proprietorship is to obtain certain licenses which are required for specific types of businesses. These licenses can range from a Vendor's Permit for collection of the Retail Sales Tax to a municipal permit for the operation of a home based business. Licensing requirements vary depending on the specific region in which the business will operate.
· If the sole proprietorship will operate under a business name other than the owner's, the business name must also be registered under the Business Names Act. This registration is relatively simple to complete and must be renewed every five years. Although there is no formal legal requirement to conduct a search of a proposed business name, it is a good idea to do so to be sure that the name which you want to use is not identical or confusingly similar to another business name already registered. This will avoid potential law suits down the road.
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