Grant Thornton offers twelve end-of-year tax tips for businesses and individual taxpayers

2011 Year-end Tax Planning Guide and 2011-2012 Tax Planning Guide now available

TORONTO, Nov. 28, 2011 /CNW/ - Nobody wants to pay more than they have to in taxes. Grant Thornton LLP wants to remind Canadian taxpayers and businesses that now is the time to employ end-of-year tax planning strategies that can help reduce the overall tax burden.

Grant Thornton's 2011 Year-end Tax Planning Guide contains timely and important tax information for individuals, investors and businesses who want to minimize their tax burden for 2011 by taking advantage of time-sensitive tips that require implementation before the end of the year or early in 2012. At the same time, Grant Thornton is also publishing its annual Tax Planning Guide 2011-2012, a more comprehensive desk-top reference on the latest business and individual tax developments. For the first time, these documents are now available in a downloadable e-book format for easier reference.

Managing a tax burden has never been more difficult, whether you're managing your individual tax rates, the rates on your investments, the taxes on your privately held business, or the income of executives and shareholders at your company. There are ways to reduce your tax liability, but all of them take planning.

"It's not too late to change what goes on your tax return when tax season rolls around," said Gary Dent, Grant Thornton's National Tax Leader. "Just a little bit of planning in November or December can go a long way in reducing your tax burden for this year."

Fortunately, there's still plenty of time to put last-minute planning techniques into play. With that in mind, Grant Thornton offers these twelve last-minute tax planning tips for individuals and business owners:

  • Switch end-of-year bonuses into dividends. Business owners may want to look at the split between salary, bonus and dividends for themselves and their spouse and/or children. Owner-managers often declare a bonus at year-end to reduce the corporation's income to the amount that qualifies for the small business deduction. However, a corporation can also pay dividends to its shareholders, and eligible dividends may be subject to a lower rate of tax.

  • Maximize the small business deduction. The first $500,000 of active business income receives preferential tax treatment by qualifying for the small business deduction, and this preferential treatment begins to be phased out when a corporation's taxable capital reaches $10 million (this could be less where the company is associated with other corporations). Since the taxable capital of a corporation is determined at year-end, check to see if your company will meet or exceed this threshold and apply strategies to reduce the amount if necessary.

  • Accelerate your business expenses into this year's higher tax rates. The federal corporate income tax rate of 16.5% will fall to 15% for 2012, and the general corporate tax rates and/or small business tax rates of some provinces, such as Ontario, are also declining. Therefore, it makes sense to accelerate expenses to 2011 to reduce the amount of income being taxed now.

  • Sell money-losing investments to offset capital gains. If you are an investor with a capital gain this year (or any of the last three years), you might want to talk to your investment advisor about selling investments with accrued losses before the end of the year. There's one caveat - you can't sell to your spouse and realize the loss. However, you can sell or gift the investments to a child or other family member. Also, if your spouse has realized a gain and you have a loss, there are ways to transfer the loss to the spouse with the gain. However, if you do sell, make sure the transaction settles before December 31 - many transactions take a couple of days to complete.

  • Defer reporting interest income on investments. Watch the timing when buying or selling investments. You have to report the interest you earned on an annual basis, even if you haven't received income, so consider buying investments that pay out annually. If you will soon acquire or rollover a short-term investment like a GIC, consider arranging for a maturity date early in 2012 so you can defer the reporting of interest income to your next return. Selling non-registered mutual funds? Sell before the distribution date so you don't have to report an income allocation from the fund - just a capital gain or loss.

  • Defer the tax when selling your business. Selling a business generates taxable proceeds, but if you reinvest the proceeds in another small business, you could be able to defer the tax. To qualify, the proceeds must be reinvested in an eligible business at any time during the year you sold, or within 120 days after year-end.

  • Loan money to your spouse or common-law partner and split the income. With current interest rates at very low levels, it might make sense to move money to the partner with a lower marginal tax bracket so they can then invest the loan proceeds and include the income/capital gains in his or her income. However, to avoid negative tax consequences, the recipient must pay the interest owing no later than January 30, 2012 and certain other conditions must be met.

  • Consider whether it makes sense to defer your RRSP contribution. Most people will want to make a 2011 RRSP contribution by the leap-year date of February 29, 2012. However, you can delay your RRSP contribution if you expect to be in a higher tax bracket in the near future, or you make the maximum contribution each year but hold off claiming the amount as a deduction until a future year when your taxable income is higher.

  • Pay certain expenses in 2011 to maximize individual tax benefits. In particular, consider medical expenses; physical fitness costs and registration costs paid for artistic, cultural, recreational or development activities for children under 16 years of age; public transit costs; investment fees (eg. safety deposit rental); moving costs; tuition and interest on student loans; and charitable and political donations. Grant Thornton's tax guides also explain how to donate to charities to maximize tax benefits.

  • Take care of your estate planning if you own vacation property in the US. Owners of property in the US may have US estate tax exposure - and, if you pass away, your estate could now be subject to a US estate tax with a top rate of 35%, newly reintroduced in 2011.

  • Reduce the taxable benefit on your company car. If your employer provides you with a car, you'll have a taxable benefit included in your income. That benefit has two components - a "standby charge" and an "operating cost benefit". Standby charges can be reduced if you use the vehicle more than half the time for business and your annual personal driving is 20,000 km or less. You may also be able to reduce your operating costs by reimbursing your employer for some or all of the costs - but you have to do it by February 14, 2012.

  • Trades might want to top up their tools. Employed trades people might be entitled to a tax deduction of up to $500 for new tools (except things like cell phones and computers). The deduction applies to purchases that total in excess of $1,065, so check your receipts. If you haven't purchased at least $1,565 in tools this year, try to max out the deduction before December 31.

While these tips aren't a substitute for the recommendations of your tax advisor, and individual circumstances vary, they will help individuals and businesses increase their knowledge of changes, and can be used to begin the conversation with your accountant. For more details on these tips, or to download your own copy of the new Grant Thornton tax planning guides, visit http://www.grantthornton.ca/services/tax/tax_guides.

Notes to Editors

About Grant Thornton in Canada
Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton in Canada has approximately 4,000 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms operate in close to 100 countries worldwide.

The information contained herein is prepared by Grant Thornton LLP for information only and is not intended to be either a complete description of any tax issue or the opinion of our firm. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein. You should consult your Grant Thornton LLP adviser to obtain additional details and to discuss whether the information in this article applies to your specific situation.

Grant Thornton has senior tax advisors available for interviews in Toronto and in communities across Canada.

About Grant Thornton's Tax Team

Whether businesses are looking for advice on domestic, cross border or international tax issues, or understanding changes to the domestic and international legislation and regulatory environment, Grant Thornton tax advisers have experience working with clients across all sectors.

Our domestic tax services practitioners provide effective advice on personal tax, owner-manager tax and corporate tax—staying on top of new reporting requirements, the ever-changing legislative and regulatory environment, and emerging market trends. We can assist with tax filings, ruling requests and advise on tax strategies to help you minimize taxes and gain the best possible tax advantages.

Our tax experts work with businesses on strategic issues as well as day-to-day problem solving, and our senior tax practitioners personally support the client throughout the course of the relationship. Grant Thornton is committed to open communication and sharing professional insight, earning the firm many long-term relationships.

In addition to domestic tax advice, Grant Thornton LLP's Tax Practice also specializes in international and US cross-border tax planning and compliance; succession and estate planning; sales tax; SR&ED tax credit; transfer pricing; and expatriate tax advice.

SOURCE Grant Thornton LLP

For further information:

Tania Freedman
Senior Manager, Media Relations
Grant Thornton LLP
Phone:  416-607-2745
Email:  tania.freedman@ca.gt.com


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