Tax Tip[] year-end-planning

Year End Planning

“it is better to start planning now, rather than waiting.”

This is the time of year that you should be reviewing your clients’ corporate and personal tax affairs with a view to implementing a shareholder remuneration strategy. No matter whether your client has a calendar or non-calendar fiscal year end, the calendar year 2014 is relevant for purposes of determining whether bonuses should be paid and T4’d in the year and whether dividends should be declared and T5’d in 2014.

Considerations to take into account will include, among other factors:

  • The status of your client’s shareholder loan account;
  • The balance in the corporation’s capital dividend account;
  • Whether there is paid up capital in the issued shares;
  • Your client’s personal cash needs;
  • The ability or potential to income split with other family members; and
  • The effective corporate tax rate.

In 2014, the Federal Government introduced measures to reduce the gross-up and dividend tax credit for “other than eligible dividends”, paid by a Canadian-Controlled Private Corporation (“CCPC”) to a resident Canadian shareholder. The effect of this change was to increase tax rates on these types of dividends for 2014. In Ontario, the highest rate on these dividends will be 40.13% instead of the 2013 rate of 36.47%.

In most provinces, integration will not work as efficiently in 2014 as it did in prior years. Practitioners may therefore want to re-think the dividend vs. salary issue. In some provinces bonuses will be better than dividends, while in others the reverse will be best.  There is no one right answer. Remember, shareholders should consider extracting funds for personal use in the form of repayment of shareholder loans, tax free returns of paid up capital or tax free capital dividends where these options exist.  Also, paying a dividend to a low-rate family member who is over 18 may be an option. If such family members are not shareholders, consider creating a family trust to allow for this type of income-splitting and other tax savings in the future.

Since the proper remuneration strategy should be determined and documented on a timely basis, it is better to start planning now, rather than waiting for December 31st to arrive.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.

Year-End Tax Planning Considerations

“Year-End Tips.”

As we approach December 31st, it is time to think about year-end tax planning for your clients. This tax tip provides you with a checklist of some of the more common year-end planning considerations.

  1. Ensure that all charitable donations are made by December 31st. Otherwise, they will not be eligible for the donation tax credit until 2004.
  2. To receive tax benefits of certain expenditures for 2003, ensure that they are paid before December 31st. These include Medical Expenses, Union Dues, Investment Counsel Fees, Investment Management Fees, Alimony and Maintenance Payments, Child Care Expenses, Political Contributions and Accounting Fees.
  3. If you have loaned money to your spouse, ensure that interest is paid on this loan no later than January 30, 2004, to ensure non-attribution of the income.
  4. Ensure that RRSP contributions for the 2003 taxation year are made no later than March 1, 2004. The sooner the contributions are made, the sooner the tax-free compounding effect will kick in.
  5. If your client has turned 69 during the year, he must make his RRSP contribution on or before December 31st. In addition, your client must annuitize his RRSP before the end of the year.
  6. If your client has unrealized capital losses in his investment portfolio and has realized capital gains during the year, he should trigger the unrealized losses before December 31, 2003 to shelter the gains from tax. The last trading date for 2003 is December 24th. Therefore, any trades should be executed on or before December 24th, otherwise the trades will not settle until 2004, and the loss cannot be reported on the 2003 return.
  7. Consider shifting income to 2004 to defer tax. For example many employers offer their employees an option to receive their Christmas bonus in January.
  8. If you are the recipient of a seasonal gift from your employer, an amount up to $500 can be received tax-free. Your employer will get the deduction for the gift.

This list of tax strategies is not exhaustive, but it should provoke thought and help minimize your client’s overall 2003 tax liability.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.