Small business tax tips

TORONTO: Canadian small business owners have one more month to take advantage of 2010 tax savings, according to Jamie Golombek, CIBC’s managing director of tax and estate planning.

Golombek reminded companies that many tax saving activities must be completed by Dec. 31 to realize tax savings for the year.

His tips include:

1. Purchase business assets now

If you’re self-employed or a small business owner, you may want to buy new business equipment or office furniture that you were planning to purchase in 2011.

Under the tax rules, you are generally permitted to deduct, under the “half-year rule,” one half of a full year’s tax depreciation in 2010, even if you bought it on the last day of the year. For 2011, you can then claim a full year’s depreciation.

For computer equipment purchased before February 2011, you can write off 100 per cent of the cost in the year of acquisition with no half-year rule.

2. Have your corporation reimburse rewards-paid travel

If you used personally earned credit card rewards points, such as Aeroplan Miles, to travel for business, have your corporation reimburse you for the value of the travel. Your corporation can deduct the expense and it’s non-taxable to you personally.

3. Rethink year-end compensation

If your business is incorporated and you are facing a December 31 corporate year-end, you may want to revisit your salary-dividend mix for 2010.

It may make more sense for small business owners to pay themselves exclusively through dividends rather than salary in 2010.

While this precludes them from making an RRSP contribution next year as dividends are not considered “earned income,” they may be better off saving money inside their corporations rather than inside an RRSP.

Examine the tax savings advantage dividends may offer over salary and the tax deferral advantage of leaving funds inside the company as opposed to paying them out immediately.

CIBC also released a report on how it may make more sense for some business owners to save money inside their corporations rather than paying themselves a salary merely to create RRSP contribution room.

It argues that in many cases, dividends may be more tax favourable than salary.