Omissions A Taxpayer Make In Planning & Filing Corporate Income Tax Returns

1. Neglecting to review, with accountant, corporation taxable income rates vs. personal

tax rates prior to December 31. It may be prudent to declare and pay bonuses/dividends before the end of the calendar year and remit all applicable tax deductions to CRA before the Jan 15th deadline, plus file necessary T4 slips and T5 slips before the end of February deadline.

2. Failure to keep adequate mileage records of business use of vehicles. You can choose one of two ways to calculate the business use of a vehicle. One based on a percentage of actual expenditures incurred while using the vehicle, the other is a value derived from multiplying the total mileage by the cents per mile allowed by CRA.

3. Neglecting to calculate an amount for deferred revenue. Taxes can be deferred for recorded sales which pertain to goods not delivered to the customer.

4. Neglecting to claim business storage space in owner's personal residence as well as an office in home.

5. Acquiring capital assets after the fiscal year end. Taxpayers can utilize the CCA write-off for new equipment purchased any time during a fiscal year. Purchasing a piece of equipment right after the year end means another year before any CCA(capital cost allowance) can be claimed.

6. Failure to allocate issued share capital with different classes of authorized share capital thus allowing for different dividend amounts between shareholders, if feasible.

7. Failure to moderate spousal salary in order to take advantage of marital exemption for higher income spouse. In some family situations one spouse will be receiving a high salary while the other spouse is starting up a new business. The marital exemption can be claimed if the dependent spouse's income in under $2,000. The company will pay tax at a rate much lower than the higher income spouse, thus a salary is not needed to save tax in the corporation.

8. Consideration should be given to retaining earnings in a holding company instead of an RRSP and CPP. An active business corporation can transfer retained earning tax free to a parent corporation. Future dividends can be withdrawn from the holding company tax free up to approx $30,000 per year. Holding company probably earn a greater return on capital than is earned within the CPP. CPP is not paid on dividends.

by: keith k Griffiths

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