Eligible dividends that do not trigger a RDTOH refund.
Non-eligible dividends that do not trigger a RDTOH refund.
Consider making the election that permits a CCPC to be treated as a non-CCPC for purposes of the dividend tax regime. For a newly incorporated CCPC that is expected to earn only active business income and will not benefit from the small business deduction, this would eliminate the need to calculate and monitor GRIP before paying eligible dividends. A CCPC that will become a non-CCPC (i.e., planning to go public or become controlled by non-residents) should consider the effect of the federal dividend tax rules, as well as the deemed year end rules. Non-CCPCs – Determine whether the non-CCPC must pay non- eligible dividends before it can pay eligible dividends, by computing its low-rate income pool (LRIP). A non-CCPC that will become a CCPC should consider the effect of the federal dividend tax rules.
Cash flow management – Recognize that managing your business cash flow is critical in times of economic uncertainty. To reduce working capital outflows, reduce or defer tax instalments (if lower taxable income is expected), maximize federal and provincial refundable and non-refundable tax credits (e.g., SR&ED investment tax credits and film, media and digital incentives), trigger capital losses to recover capital gains tax paid in previous years and recover any income, sales or customs tax overpayments from previous years.
Salaries to family members – Pay a reasonable salary to a spouse or child who is in a lower tax bracket and provides services to your business. This also allows family members to have earned income for CPP, RRSP and child care expense purposes.
Remuneration accruals – Accrue reasonable salary and bonuses before your business year end. Ensure accrued amounts are paid within 179 days after the business’ year end and appropriate source deductions and payroll taxes are remitted on time.
Employee profit sharing plans (EPSPs) and retirement compensation arrangements (RCAs) – Consider setting up an EPSP or RCA as an alternative to paying a bonus.
Employee stock options – Be aware that for stock options disposed of after 4:00 pm EST on March 4, 2010, only the employer or employee (not both) can claim a tax deduction for cashed-out stock options, among other changes. The company can forgo the tax deduction by filing an election. See our:
Tax Memos “August 27, 2010 Draft Legislation Implements 2010 Budget Proposals and Other Previously Announced Measures” and “Stock Options: 2010 Federal Budget Implications for Employers”; and
podcast “2010 Federal Budget: Proposed Changes to Stock Option Rules – Perspectives from Rick Schubert.”
Donations – Make charitable donations and provincial political contributions (subject to certain limits) before year end. See our booklet, Charitable Giving Guide for Donors. Be aware that commencing 2010, corporations, trade unions and partnerships can no longer make political contributions in Nova Scotia; this parallels existing federal restrictions.
Final corporate tax balances – Pay final corporate income and capital tax balances and all other corporate taxes imposed under the Income Tax Act within two months after year end (three months for certain CCPCs).
Corporate withdrawals – Make tax-effective withdrawals of cash from your corporation (e.g., by paying tax-effective dividends or non-taxable capital dividends, returning capital, repaying shareholder loans or redeeming preferred shares).
Corporate income – Consider deferring income to 2011 and later years by maximizing discretionary deductions (e.g., CCA) in 2010 to benefit from the following corporate rate reductions:
Small business rate – small business rates will decrease in Newfoundland and Labrador and Nova Scotia for 2011 and Manitoba on December 1, 2010, and have decreased in Ontario on July 1, 2010 and Prince Edward Island on April 1, 2010; the small business threshold will be higher in the Yukon after 2010 (see Table 6 on page 19).
General rate – the federal general income tax rate will decline from 18% to 16.5% in 2011 and to 15% in 2012. General rates will also decline in British Columbia, New Brunswick and Ontario (see Table 4 on page 18). However, New Brunswick’s new government could revise scheduled corporate tax decreases.
Mandatory E-filing of corporate income tax and information returns – To avoid penalties, e-file:
corporate income tax returns, commencing 2011 taxation years, if annual gross revenues exceed $1 million; and
information returns, commencing 2011, if more than 50 information returns are submitted annually.
See our Tax Memo “Mandatory E-filing of Corporate Income Tax and Information Returns.”