Business owners: Are you a candidate for a Corporate Reorganization and save tens of thousands of dollars of potential tax savings every year!!

what is a Corporate Reorganization??

A Corporate Reorganization is a way to reorganize and restructure your company so that you can reap the rewards of the existing tax regulations - often resulting in tens of thousands of dollars of potential tax savings every year into the future.

why do I need a Corporate Reoganization?>

As a Business Lawyer, I sometime see situations where businesses are set up with a certain structure to take advantage of particular circumstances that were relevant at the time they were set up, but as we all know, situations change over time.

It is therefore sometimes the case that the favourable conditions existing at the time your corporate structure was put in place are no longer there, and you might end up with a somewhat cumbersome of inefficient structure in today's business climate, particularly from a tax point of view.

On a daily basis, I work with companies in this situation to help them reorganize and restructure so that they can reap the rewards of the existing tax regulations - often resulting in tens of thousands of dollars of potential tax savings every year into the future.

In many situations, for example, I may recommend a corporate reorganization, whether for corporate tax planning, creditor proofing or other organization purposes. I can also assist you in the transfer of assets on a tax-deferred basis from one entity to another, or from one corporation to another. Alternatively, I could recommend amalgamating two corporations or winding up one into the other for tax planning purposes or to rationalize a corporate structure.

Often, I will investigate the options thoroughly and advise you of the best plan to meet with your objectives.

There are many reasons companies may need to be reorganized:

•to establish and implement a family trust in the course of corporate reorganization;
•to create holding companies for creditor-proofing reasons;
•to divide the assets of a corporation among the shareholders;
•to incorporate a business, so that it may be carried on in corporate form;
•to carry out an estate freeze in the most effective manner;
•to transfer a business from a corporation to a partnership to deduct losses, take in a partner, or eliminate capital tax

If you think you are a candidate and would like to know more, I can advise on whether a corporate reorganization is required, the benefits of such a reorganization, and the disadvantages, if any.

Finally, I can also develop a plan to implement the corporate reorganization, and work with your advisors (accountants, financial planners, insurance) to execute the plan.

Please contact me should you wish more information on the above.

Business owners: 7 Reasons to Incorporate Your Business! *

Business owners: You should incorporate If Any of These Apply to You.

One of the first questions new business owners need to answer is how to legally structure their business, a question often phrased as, "Should I incorporate my business or not?" Below are seven reasons to incorporate your business. Whether you're starting a new business or running an established enterprise, you'll probably want to incorporate if any of these situations apply.


1. You need to incorporate if you’re trying to get financing.

"Certainly, you will need to probably incorporate if you want to look for financing, because that demonstrates to a lender that you are committed to going for the long haul," says Ted Mallett, vice-president of research and chief economist at the Canadian Federation of Independent Business (Ann Perry, Banking on a home-based business, TheStar.com).

Whether or not it's true, lenders generally have the perception that businesses that bother to incorporate are more serious and stable than those that don't.


2. You need to incorporate to be eligible for particular federal programs.

For instance, if you don't incorporate, your business is not eligible for the Small Business Internship Program, a program where the Government of Canada will reimburse 75 percent of the eligible wages and related expenses such as statutory employee benefits, up to a total of $10,000 when you employ a post-secondary student to work on an information and communication technologies (ICT) project.

The Ontario Book Publishing Tax Credit (OBPTC), which provides a maximum tax credit of $10,000 per title, is another example of a program only open to Canadian-controlled private corporations.

3. You need to incorporate if your business involves potential liability that could seriously damage your personal finances.

Roger Haineault suggests considering what the worst that could happen is when trying to answer the question, "Should I incorporate my business?"(Pros and cons to incorporating, New Brunswick Business Journal).Suppose you're a painter, he says. The worst that can happen if a customer is dissatisfied with the job you do is that you might have to repaint some rooms.

But the worst can be much worse if the painter has hired a worker who falls off a roof. As a sole proprietor, the painter could be wiped out financially, whereas the most a corporation can lose is the value of its assets.

What's the worst that could happen in your business? Your projected liability could make the cost to incorporate your business a bargain.

4. You need to incorporate if you're trying to work for other businesses.

Some businesses, especially larger corporations, will only hire contractors that are incorporated. So if you don't incorporate, you have no chance of working for them.

5. You need to incorporate if you want to take advantage of the Lifetime Capital Gains Exemption when you sell your business.

If you sell shares of a qualifying corporation for a profit, the first $750,000 of your gain on a lifetime basis can be received on a tax-free basis.

What's the catch? Well first of all, a business owner qualifies for the exemption only if the company is a Canadian-controlled private corporation with generally 90 per cent of its assets involved in active business. Second, the shares must have been owned by the owner for at least 24 months before the sale of the business and more than 50 per cent of the corporation's assets must have been used in an active business carried on primarily in Canada throughout the 24-month period immediately before the sale.

Bruce Ball, a recognized authority on capital gains, succession and retirement planning explains how to take steps now to make sure your company can benefit from the Lifetime Capital Gains Tax Exemption in the future, such as crystallizing your exemption (The Importance of the Capital Gains Exemption for Owner–Managers (Canadian Federation of Independent Business).

6. You need to incorporate to take advantage of the Small Business Deduction.

For Canadian-controlled private corporations claiming the small business deduction, the net tax rate as of January 1, 2008 is 11%, while the net tax rate for other types of corporations as of January 1, 2008 is 19.5%. (Note that, once again, this tax advantage is only available to Canadian-Controlled Private Corporations. See Types of Corporations in Canada.)

7. You need to incorporate if you're making enough money that you need to manage your income.

For instance, in a discussion about whether or not to incorporate in the About Small Business Canada forum, one user wrote:

"The beauty of having that separate legal entity means you can also throttle how much you pay yourself in any given year. You can hold it in the company or not depending on other things going on in your life. Think of it as a giant surrogate RRSP. As a sole proprietor, if you have a banner year, you're going to pay serious tax right away that year."
If you incorporate your business, you can control how much revenue you take and therefore, how much personal income tax you pay.

Other Reasons to Incorporate Your Business

I've given you seven reasons to incorporate your business here but there are more. One that springs to mind is public perception. Generally I think the public views incorporated businesses more favourably. There's a certain amount of prestige attached to an "Inc." or a "Ltd." After a company's name.

But should you incorporate your business? My best advice is to consider the reasons to incorporate I've presented above, and if you're still unsure about whether or not you should incorporate your own business, talk to your accountant or lawyer about it.


*** This excellent article was written by Suzan Ward and published on the website www.about.com ***

Tax tip: A free iPod or gift certificate received by your employees is a lot less attractive if they have to pay tax on it?

Today I would like to share a great article written by Jamie Golombek. Mr. Golombek is managing director, tax & estate planning at CIBC Private Wealth Management.

The gift that takes.


Do your employees sometimes receive gifts from customers? If so, are they allowed to accept them and, perhaps more importantly, can they keep them for personal use or do the gifts have to be shared, where feasible, with the entire team? And what about the tax implications of such a gift?

Under the Tax Act, an employee's income from employment includes salary and wages, as well as "other remuneration received by the taxpayer in the year." Other remuneration includes cash and near-cash gifts (i. e., gift cards) received "by virtue of employment."

A technical interpretation released by the Canada Revenue Agency (CRA) earlier this year shed further light on the tax treatment of gifts, particularly gifts and awards received via an employee draw. In this case, the CRA was asked what the tax implications would be if employees who receive gifts from a customer -- be they cash, gift cards or physical items, such as an iPod -- choose to donate these gifts to the employer's Social Committee. The Social Committee, which is not funded in any way by the employer, other than it hosting an annual holiday party, then gives the gifts away in a random draw that includes all employees.

In response, the CRA reiterated that if an item is given to one employee by an employer via a prize draw and the draw is only open to employees of the company, then any item won is a taxable benefit of employment since it was gained by virtue of his or her employment. If, on the other hand, an item is paid for by a social committee and given via a draw, as long as the social committee is neither funded nor controlled by the employer, it's the CRA's position that such a prize is considered to be a tax-free windfall.

But in this particular situation the gift was received by an employee from a customer, and the CRA concluded it must be included in the recipient employee's income, regardless of whether the employee donates the gift to the social committee. When the committee subsequently awards it to another employee via a draw in which all employees can participate, the employee who ultimately receives that gift is not considered to have received a taxable benefit.

While it may be kind of the CRA to not insist on taxing the same gift twice, the taxman's harsh position on the initial gift seems a bit cruel -- and may certainly discourage employees from donating a taxable gift to their company for any reason.

Business owners: 8 tax changes you should know about...

I would like to share an article published in the Globe and Mail and written by Tim Cesnick.

Business owners: 8 tax changes you should know about...

In the weeks leading up to the 2011 federal budget there was very little talk about the type of tax measures that were likely to be proposed. The silence was deafening. Now, the score is in: Taxpayers: 9, the Government: 12 – give or take. That is, there were more measures proposed in the 2011 Federal Budget to benefit the government by closing loopholes than measures designed to put more money into the pockets of Canadian taxpayers.

While I won’t dwell on every change proposed in this budget, let me share some key highlights that are sure to impact many Canadian families and individuals.

FAMILIES

1. Children’s Arts Tax Credit. This credit should have been called the “Development” credit rather than the “Arts” credit because it will apply to much more than just artistic activities. Regardless, it’s good news for families. This tax credit can be claimed on up to $500 of eligible expenses per child each year. It will put $75 of federal tax back in your pocket if you spend $500 for a child (the actual federal credit is 15 per cent of the eligible expenses). Eligible expenses include fees paid for children under 16 in an eligible program of artistic, cultural, recreational, or developmental activities. Eligible activities include things like music lessons, instruction in languages, dance, literary arts, visual arts, and even academic tutoring.

2. Family Caregiver Tax Credit. A new tax credit will be available beginning in 2012 for those caring for a dependent with a mental or physical infirmity. It applies to your total tax credits if you’re already eligible to claim the spousal or common-law partner credit, child tax credit, eligible dependent credit, caregiver tax credit, or infirm dependent credit. If you qualify for one of these credits, you can claim an additional 15 per cent of $2,000 federally ($300 in added tax savings).

3. Medical Expense Tax Credit. Up until this budget, you had the ability to claim a tax credit for medical expenses incurred for yourself, your spouse or common-law partner, your children who are under 18, or certain other dependent relatives. When it comes to these “other dependent relatives” there has been a cap of $10,000 on the amount that could be claimed. This budget has removed the $10,000 limit for dependent relatives, and applies for 2011 and later tax years.

EDUCATION

4. Exam fees. This budget proposes to amend the tuition tax credit to recognize fees paid to an educational institution, professional association, provincial ministry, or similar institution to take an exam that leads to a professional status recognized by a statute, or to be licensed or certified to practice a profession or trade in Canada. The total fees must be $100 or more to be eligible to claim a credit, and applies to exams taken in 2011 or later years. Be sure to keep your receipts for these exams.

5. Studying abroad. It used to be that a student could qualify to claim a tuition tax credit for studying outside of Canada only where the course lasted at least 13 consecutive weeks. Because many programs are shorter than this, the 2011 budget reduces the minimum course duration to three consecutive weeks. The 13-week requirement to be eligible to withdraw educational assistance payments from a registered education savings plan (RESP) has also been reduced to three weeks for many courses.

6. RESPs. The budget introduces changes that will allow assets inside RESPs to be transferred from one sibling’s plan to another without tax penalties or triggering a repayment of the Canada Education Savings Grants (CESGs), provided that the beneficiary of the plan receiving the assets has not turned 21 by the time the plan was opened.

INVESTORS

7. RRSPs. A new set of rules has been introduced in this budget to prevent taxpayers from entering tax schemes designed to enable investors to access the funds inside their Registered Retirement Savings plans without paying tax on withdrawals. These “RRSP-strip” schemes have evolved over time and the new rules are broad enough to stop virtually all of them. Further, it used to be the case that you could potentially hold a sizeable investment in private company shares in an RRSP. The rules have been tightened to limit that investment to less than 10 per cent of a private company (this is a complex area of the tax law – so speak to a tax pro for more).

8. Donation of flow-through shares. It was great while it lasted, but a “loophole” has just been closed. It has been the case that you could purchase flow-through shares, gain a tax deduction for virtually the entire amount invested, donate the shares to charity and receive a donation tax credit for the full value of the shares. To boot, you wouldn’t have to pay tax on the resulting capital gain when the shares were “disposed of” by transferring them to the charity. The rules are now tightened so that the capital gain on the transfer of the shares to the charity will be taxable, unless the gain represents the value of the shares over and above what you paid for the shares. There’s still tax relief in this strategy, but it’s not as generous as before.