Often overlooked in the year-end rush is one of the most important year-end duties of all: tax planning.
Getting involved in tax planning leads to greater financial benefits
Year end usually finds small business owners scrambling to fulfill orders, close accounts, tie up loose ends, and organize staff schedules before the holidays; but Bryan Hubbell (pictured at right), tax principal for Manning Elliott LLP, points out that often overlooked in this mad rush is one of the most important year-end duties of all: tax planning.
Hubbell concedes that the pace of business today prevents many entrepreneurs from focusing on taxes beyond ensuring that they have all the information necessary to fulfill the Canada Revenue Agency’s expectations. “And that’s troubling, because the more they involve themselves in tax planning, the more information they gain, which in turn enables them to make decisions that can lead to substantial financial benefits,” he says.
This year is an especially appropriate time to focus on tax planning due to a host of changes proposed by the federal and provincial governments aimed at small businesses. First and foremost is a proposal from the federal Liberals, expected to become law in the New Year, that will limit the ability of small business owners to split incomes with non-active family members—thus preventing them from achieving lower tax rates via the payment of dividends to low-income family members.
Hubbell says: “Those affected by this proposal should look at paying dividends to non-active family members who are shareholders before the end of this year, rather than waiting for the law to take effect.”
Another federal initiative will see the small-business tax rate shrink from 10.5 per cent to nine per cent over two years beginning in 2018. While this is good for business investment, it means that the tax rate of non eligible dividends must increase. “The latter initiative could be troublesome for many entrepreneurs, so they should think about accelerating their payment of dividends this year,” says Hubbell.
Meanwhile, the B.C. NDP is planning to increase the tax rate of individuals making over $150,000 annually by 2.1 per cent. “Knowing this, people affected by the increase should consider options to lock in the current tax rate, or look at opportunities to defer their income to lower-income years,” says Hubbell.
Finally, the New Democrats will be increasing the general corporate tax rate by one per cent effective Jan. 1, which could significantly impact companies with big incomes. Hubbell notes: “The owners of these companies should be looking at opportunities right now to lock in the lower corporate tax rates. Perhaps they can accelerate income before the New Year, or defer it over time in future tax years.” Of course, by seeking the expertise of Manning Elliott’s accountants and advisors, entrepreneurs can learn many more ways to plan in a changing tax landscape. “We encourage them to start by taking a good look at where their business is and asking us questions about their taxes,” says Hubbell. “From there, effective planning strategies can be determined.
“It really is the classic case of knowledge giving people a sense of power. Small business owners have a lot on their plate at this time of year, so they need assistance in business management—and we’re here to provide that.”
Bryan Hubbell is a Principal with Manning Elliott LLP with expertise in personal and corporate income tax planning, and estate and succession planning. He is particularly focused on providing timely and effective tax advice to privately held businesses and their shareholders. For more information regarding this topic, please contact us at 604-714-3600 or 1-604-557-5750.
Manning Elliott LLP is one of the province’s largest independent regional accounting and business advisory firms with offices in downtown Vancouver (604-714-3600), Burnaby (604-421-2591), Surrey (604-538-1611), and Abbotsford (1-604-557-5750). The firm has been around for more than 60 years and employs over 200 professionals and staff.