2022 Year End Tax Tips and Strategies for Business Owners

Now that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.

Salary/Dividend Mix

As a business owner, an essential part of tax planning is determining if you receive salary or dividends from the business.

When you’re paid a salary, the corporation can claim an income tax deduction, which reduces its taxable income. You include this pay in your personal taxable income. You’ll also create Registered Retirement Savings Plan (RRSP) contribution room. 

The alternative is the corporation can distribute a dividend to you. The corporation must pay tax on its corporate income and can’t claim the dividend distributed as a deduction. However, because of the dividend tax credit, the dividend typically pays a lower tax rate (than for salary) on eligible and non-eligible dividends. 

In addition to paying yourself, you can consider paying family members. These are the main options you can consider when determining how to distribute money from your business:

  • Pay a salary to family members who work for your business and are in a lower tax bracket. This enables them to declare an income so that they can contribute to the CPP and an RRSP. You must be able to prove the family members have provided services in line with the amount of compensation you give them.

  • Pay dividends to family members who are shareholders in your company. The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.

  • Distribute money from your business via income sprinkling, which is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to tax on split income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.

  • Keep money in the corporation if neither you nor your family members need cash. Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your tax rate.

No matter what strategy you take to distribute money from your business, keep in mind the following:

  • Your marginal tax rate as the owner-manager.

  • The corporation’s tax rate.

  • Health and payroll taxes

  • How much RRSP contribution room do you have?

  • What you’ll have to pay in CPP contributions.

  • Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).

Compensation

Another important part of year-end tax planning is determining appropriate ways to handle compensation. Compensation is financial benefits that go beyond a base salary.

These are the main things to consider when determining how you want to handle compensation:

  • Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose and offers deductible interest.

  • Do you need to repay a shareholder loan to avoid paying personal income tax on your borrowed amount? 

  • Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying a bonus?

  • Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.

  • Consider setting up a retirement compensation arrangement (RCA) to help fund your or your employee’s retirement. 

Passive Investments

One of the most common tax advantages available to Canadian-controlled private corporations (CCPC) is the first $500,000 of active business income in a CCPC qualifies for the small business deduction (SBD), which reduces the corporate tax rate by 12 to 21 percent, depending on the province or territory. 

With the SBD, you can reduce your corporate tax rate, but remember that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.

The best way to avoid losing any SBD is to ensure that the passive investment income within your associated corporation group does not exceed $50,000.

These are some of the ways you can make sure you preserve your access to the SBD:

  1. Defer the sale of portfolio investments as necessary.

  2. Adjust your investment mix to be more tax efficient. For example, you could hold more equity investments than fixed-income investments. As a result, only 50% of the gains realized on shares sold are taxable, but investment income earned on bonds is fully taxable.

  3. Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total. 

  4. Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.

Depreciable Assets

Consider speeding up the purchase of depreciable assets for year-end tax planning. A depreciable asset is a capital property on which you can claim Capital Cost Allowance (CCA).

Here’s how to make the most of tax planning with depreciable assets:

  • Make use of the Accelerated Investment Incentive. This incentive makes some depreciable assets eligible for an enhanced first-year allowance.

  • Purchase equipment such as zero-emissions vehicles and clean energy equipment eligible for a 100 percent tax write-off.

  • Consider postponing the sale of a depreciable asset if it will result in recaptured depreciation for your 2022 taxation year.

Qualified Small Business Corporation (QSBC) Share Status

Ensure your corporate shares are eligible to get you the $913,630 (for 2022) lifetime capital gains exemption (LCGE). The LCGE is $1,000,0000 for dispositions of qualified farm or fishing property.

Suppose you sell QSBC shares scheduled to close in late December 2022 to January 2023. In that case, you may want to consider deferring the sale to access a higher LCGE of $971,190 for 2023 and therefore defer the tax payable on any gain arising from the sale.

Consider taking advantage of the LCGE and restructuring your business to multiply access to the exemption with other family members. But, again, you should discuss this with us, your accountant and legal counsel to see how this can benefit you. 

Donations

Another essential part of tax planning is to make all your donations before year-end. This applies to both charitable donations and political contributions.

For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:

  • Donate Securities

  • Give a direct cash gift to a registered charity

  • Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.

  • Set up a private foundation to solely represent your interests.

We can help walk you through the tax implications of these types of charitable donations.

Get year-end tax planning help from someone you can trust!

We’re here to help you with your year-end tax planning. So book a meeting with us today to learn how you can benefit from these tax tips and strategies.

2022 Ontario Budget Highlights

On April 29, 2022, Ontario’s Minister of Finance delivered the province’s 2022 budget, based on five different pillars. 

No Changes To Corporate or Personal Tax Rates

Budget 2022 did not introduce changes to Ontario’s corporate or personal tax rates.

Rebuilding The Economy

Budget 2022 wants to help rebuild the economy as follows:

  • Almost $1 billion is committed to critical legacy infrastructure, such as all-seasons roads.

  • Creating good manufacturing jobs. In the past 18 months, 12 billion dollars have been invested in supporting new electric vehicle production and battery manufacturing.

  • Enable Ontario employers to realize an estimated $8.9 billion in cost savings by cutting taxes and lowering electricity costs.

Better Jobs and Bigger Paycheques

Another focus is on more significant paycheques and better job opportunities. To support this:

  • The general minimum wage will rise to $15.50 per hour starting October 1, 2022.

  • $1 billion will be committed annually to employment and training programs for learning new skills or upgrading existing ones. 

  • Over three years, $114.4 million has been committed to the Skilled Trades Strategy, including expanding in-class training.

  • Ontario is expanding college degree granting. Colleges can start offering new degree programs in various sectors, including the automotive industry and health care.

Building Highways and Key Infrastructure

Budget 2022 commits to: 

  • Investing $158.8 billion in crucial infrastructure over ten years, with $20 billion spent in 2022–23.

  • $25.1 billion being spent over ten years to support major highways such as the Bradford Bypass, Highway 413, Highway 401 and Highway 7.

  • $61.6 billion over ten years to support public transit. This includes expanding GO train services to London and Bowmanville and expanding passenger rail service to Northern Ontario.

Keeping Costs Down

Another focus of Budget 2022 is to help people save money:

  • Tolls will be removed on Highways 412 and 418.

  • Starting July 1, the gas tax will be cut by 5.7 cents per litre for six months.

  • License plate renewal fees will be eliminated and refunded, leading to a $120/year savings in Southern Ontario and $60/year savings in Northern Ontario.

  • $300 in additional tax relief will be available on average for 1.1 million lower-income workers via the proposed Low-income Individuals and Families Tax Credit enhancement.

  • Supporting the creation of all types of housing.

  • Working towards an average of $10-a-day child care by September 2025.

Investing in Health Care

Budget 2022 also understands the importance of continuing to invest in health care. Money is committed as follows:

  • Over $40 billion for hospitals and other health infrastructure over ten years.

  • $764 million over two years to provide nurses with a retention incentive of up to $5,000.

  • $42.5 million over two years to expand medical education and training.

  • $1 billion for in-home care over three years.

We can help!

Wondering how tax changes in this year’s budget may impact personal finances or business affairs? Reach out to us – we’re here to answer any questions you may have!

2022 Financial Calendar

2022 Financial Calendar

Welcome to our 2022 financial calendar! This “at a glance” document lists important dates, including when government benefits are distributed and tax filing deadlines.

Be sure to bookmark this or add the dates listed to your personal calendar so you’re always in the loop!

Use our calendar to make sure you keep on track with your financial goals and avoid missing any critical tax or investment deadlines.

If you’re looking for help with your taxes, tax packages will be available in February 2022, so reach out to your accountant or us to book an appointment and get started on your taxes!

Important Dates

Dates to know:

  • January 1 is when the contribution room for your TFSA opens again. The maximum contribution for 2022 is $6,000.

  • The government will issue GST/HST credit payments on January 5, April 5, July 5, and October 5.

  • Canada Child Benefit payments (CCB) will be issued on the following dates: January 20, February 18, March 18, April 20, May 20, June 20, July 20, August 19, September 20, October 20, November 18, and December 13.

  • The government will issue CPP and OAS payments on the following dates: January 27, February 24, March 29, April 27, May 27, June 28, July 27, August 29, September 27, October 27, November 28, and December 21.

  • The final date for your RRSP contributions to be eligible for the 2021 tax year is March 1, 2022.

  • Bank of Canada’s interest rate announcements will be on January 26, March 2, April 13, June 1, July 13, September 7, October 26, and December 7.

  • May 2, 2022, is the last day to file personal income taxes, and tax payments are also due by this date. This is also the filing deadline for final returns if death occurred between January 1 and October 31, 2021.

  • May 3 to June 30 – The filing deadline for final tax returns if death occurred between November 1 and December 31. The due date for the final return is six months after the date of death.

  • The tax deadline for all self-employment returns is June 15, 2022. Any balance owing, however, is due May 2, 2022.

  • The deadline for final RESP, RDSP, and TFSA contributions is December 31.

  • December 31 is also the deadline for 2022 charitable contributions.

  • December 31 is also the deadline for individuals who turned 71 in 2022 to finish contributing to their RRSPs and convert them into RRIFs.