November 28, 2019
by David Chong Yen, CPA, CA, CFP, Louise Wong, CPA, CA, TEP and Eugene Chu, CPA, CA
It’s that time of year to get in some late minute tax planning before it’s too late. Here are our ten tips for a tax-friendly holiday:
1. Pay yourself
If your professional corporation’s (PC) or other income is expected to be over $500,000 this year, you may wish to issue a bonus to yourself or family members who are employees. Speak to your accountant on whether it makes sense to pay the bonus before December 31st or after.
2. Decide on dividends or salaries
It’s a good time to evaluate what form of compensation makes sense for you. You don’t want to be a new parent receiving only dividends and finding out too late that the childcare expenses incurred can’t be deducted because they don’t have business income or salaries. On the flipside, maybe you decide you no longer want to pay into Canada Pension Plan/Registered Retirement Savings Plan and would rather use that money to top up your tax-free savings account (TFSA).
3. Reassess your corporate structure
Many dentist’s setup their corporate structure years ago and have not re-evaluated whether it still makes sense. Tax rules and your own personal circumstances change over time; what made sense back then might not make sense today. Ensure your corporate structure is optimized for you and your family. This could mean adding a new shareholder (a child, parent or spouse).
4. Take an inventory of your tax account balances
CRA makes many tax balances available to you online. These include RRSP limits, TFSA limits, tax losses, tuition credits etc. Even if you don’t fully understand what they are, take note of the balances and talk to your accountant about how they could affect your upcoming tax return. There may be some things that can be done before December 31st to avoid a rude awakening in April.
5. Sell losers
If you have investments that are in loss position, you may wish to sell them before December 24th to allow time for the sale to settle before December 31st. You can then use these losses against other capital gains during the year or in the previous three years. Don’t buy these investments back for at least 30 days, as that will nullify the loss.
6. Withdrawal from TFSA
If you are short a little bit of money for the holidays and need to tap into your TFSA, do so before December 31st. This will allow you to recontribute the amount withdrawn at any time in the new year. If you withdraw from your TFSA after December 31st then you will need to wait until January 1st, 2021 to recontribute the amount you withdrawn.
7. Make big purchases now
If your PC has a December 31st year-end, do some shopping for the office. Replace a dental chair or get new dental equipment. These assets would qualify for an accelerated tax deduction so buying them before year-end means you get your tax-breaks faster.
If you want a tax break for personal donations, ensure you make your donation by December 31st. You may wish to donate shares in public companies that have increased in value instead of cash as not only will you get a donation credit for the value of the shares but you also avoid the capital gains on the increased value of the shares from when you bought it.
9. Buy gifts for your staff
Each employee who is not a family member can receive up to two non-cash gifts up to $500 tax-free. The gifts can’t be gift cards so you may want to ask the staff what they want. The employees save taxes and you save on some payroll taxes.
10. Celebrate the holidays
Up to six staff meals and parties are 100 per cent tax deductible in a given year as long as all staff are invited and the cost per person is under $100. Other meals and entertainment where staff are not invited are only 50 per cent tax deductible.
About the Authors
This article was prepared by David Chong Yen*, CPA, CA, CFP, Louise Wong*, CPA, CA, TEP and Eugene Chu, CPA, CA of DCY Professional Corporation Chartered Professional Accountants who are tax specialists* and have been advising dentists for decades. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or e-mail firstname.lastname@example.org / email@example.com / firstname.lastname@example.org . Visit our website at www.dcy.ca. This article is intended to present tax saving and planning ideas and is not intended to replace professional advice.