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TAX TIPS FOR YOUR SMALL BUSINESS

There are other types of creative tax benefit arrangements you can discuss with your accountant to minimize the tax hit. For example, you could do an “estate freeze” of the shares of your existing corporation, convert them into preferred shares, and then issue new common shares with a nominal fair market value of say $.0l each to your children. This could be with the same corporate name, or by forming a new corporation for tax purposes. Again, you will need expert advice on how to do this.

Paying family members to work in your business
If you are not already doing this, consider the benefits. You can pay family members (again, your spouse or children), reasonable salaries or hourly wages for actual services. No tax is paid on income up to approximately $8,000+ if there is no other source of income, and those who receive the money can make RRSP and CPP/QPP contributions. You can probably think of ways to use the skills and services of your family members and pay them accordingly, in terms of comparative market rates.

Using up the $500,000 capital gains exemption

This is still available for qualifying small-business corporations but could be reduced or eliminated in any spring federal budget with little or any forewarning. Any such change would be effective as of the date of the budget, which is usually about the third week of February. It could therefore be a “use-it-or-lose-it” situation. Consult your professional advisors about” crystallizing” your shares to lock in the significant tax savings (it could take a few days or weeks to get your company technically eligible). For example, 90 per cent of the assets of the business have to be used for the purpose of creating income. So you couldn’t have more than l0 per cent of the fair market value in cash, as of the day that you “crystallize” the shares.

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