Allan Madan, CA Madan Chartered Accountant Tel: Allan Madan, CA, , madanca.com

 Introduction  Computation of taxable income  T2 (corporate income tax return) – the basics  Calculating the year-end tax provision  New tax depreciation (CCA) rules  Tax treatment for automobiles  Small business deduction for corporations  Benefits of incorporating  Basic tax planning for bookkeepers  Q&A 2 Allan Madan, CA, , madanca.com

 Starting point – income per financial statements (GAAP)  Add-back: Non-deductible items: ◦ Income tax expense for accounting ◦ Interest and penalties on taxes ◦ Accounting depreciation ◦ Meals and entertainment – 50% ◦ Golf fees  Subtract – Deductible items ◦ Tax depreciation (CCA) ◦ Accounting gains ◦ Dividends from Canadian corporations Allan Madan, CA, , madanca.com3

 “Any reasonable expense incurred for the purpose of earning income from business” 4 Allan Madan, CA, , madanca.com

 Example: ◦ Net income per F/S$100,000 ◦ Income tax expense per F/S$12,000 ◦ Interest and penalties on taxes$1,000 ◦ Accounting depreciation $10,000 ◦ Meals and entertainment $5,000 ◦ Golf fees$3,000 ◦ CCA$13,500 ◦ Accounting gain on share sale$4,000 ◦ Dividends from Canadian Corp$20,000 Allan Madan, CA, , madanca.com5

 Net income per FS $100,000  Add: non-deductible items ◦ Income tax expense$12,000 ◦ Interest/penalties on taxes$1,000 ◦ Accounting depreciation$10,000 ◦ Meals/entertainment – 50%$2,500 ◦ Golf fees$3,000 $28,500  Subtract: deductible items ◦ CCA($13,500) ◦ Accounting gain on share sale($4,000) ◦ Dividends from Canadian Corp.($20,000) ($37,500)  Income for tax purposes$91,000 Allan Madan, CA, , madanca.com6

 Combined tax rate (Ontario and Federal) – 16.5% for small business  Three steps to record year-end tax provision 1.Record tax expense for the year (income statement)  $91,000 x 16.5% = $15,015 2.Verify tax installments, refunds, are recorded in tax payable account (balance sheet) 3.Compare last year’s tax estimate to actual and book the difference Allan Madan, CA, , madanca.com7

 Automobiles – 30%  Computers – 55%  Furniture and fixtures – 20%  Manufacturing equipment – 50%  Other equipment – 20% Allan Madan, CA, , madanca.com8

 Lease versus buy ◦ Lease – deduct amount of lease payment – fixed ◦ Buy – deduct tax depreciation – declines over time  Personally vs. corporately owned / leased  Vehicle allowances ◦ Taxable vs. exempt 9 Allan Madan, CA, , madanca.com

 Standby charge ◦ 2% x 12 months x cost of car ◦ Or 2/3 of monthly lease cost ◦ Reduction for > 50% business use  Operating cost benefit ◦ 24 cents per KM of personal use ◦ OR 50% of standby charge if > 50% business use Allan Madan, CA, , madanca.com10

 First $400,000 of active business income is taxed at low tax rate – 16.5%  Available to corporations  What’s active business income?  $400,000 exemption shared among associated corps.  Bonus down if over $400,000  Strategies to multiply $400,000 exemption Allan Madan, CA, , madanca.com11

 Limited liability  Lower tax rate – 16.5%  Tax deferral  More tax deductions  Capital gains exemption  Ownership flexibility 12 Allan Madan, CA, , madanca.com

 To deduct home office expenses, must meet one of two tests: 1.Principal place of business OR 2.You regularly meet clients  Types of expenses: ◦ Utilities ◦ Repairs & Maintenance ◦ Mortgage Interest ◦ Property Taxes ◦ Insurance  Deductible in proportion to size of office  If you’re incorporated, consider charging rent to your corp. 13 Allan Madan, CA, , madanca.com

 Management fees ◦ GST  Dividends  Salary  Loan repayments 14 Allan Madan, CA, , madanca.com

 Salary ◦ Reasonable  Dividends ◦ Ownership issues  Employee profit sharing plan ◦ Not subject to CPP / EI 15 Allan Madan, CA, , madanca.com

 Home loans  Creditor proofing (holding companies)  Buying real estate – inter-company loans  R&D tax credits Allan Madan, CA, , madanca.com16