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Newsletter Page 1 - Toronto Certified General Accountant
Newsletter #6 December 2009
Happy Holidays!
One year ago in my December 2008 newsletter I had outlined some helpful suggestions for small
business owners and employees to maneuver the economic downturn. Things are looking up, and
recently it was announced that Canada is technically out of a recession, and jobs are returning in
North America. Inflation is creeping up however, and when it gets out of hand, interest rates will
rise. So don’t borrow more than you can handle, if you can’t carry the debt in a higher interest
rate environment.
In the Small Business Needs section, I will compare the personal tax rates for 2009 with the
small business corporate tax rate in Ontario. Perhaps in the new year you will decide to incorporate
your viable business and take advantage of the low corporate tax rate. In the Personal Income
Tax section, I will discuss year end tax tips.
2009 Personal Income Tax Rates and Small Business Corporation Tax Rates in Ontario
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Income Range
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2009 Personal Income
Tax Rate %
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2009 Small Business Income
Corporation Tax Rate %
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$400,000
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46.41
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16.5 (applies up to $400,000 before 2009)
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$500,000
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46.41
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16.5 (applies up to $500,000 in 2009 onward)
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The above table reflects the changes that the budget proposed (see March 2009 newsletter) which
received final approval. Take note that small business corporations can earn another $100,000 of
income, from $400,000 to $500,000, and the tax rate remains at 16.5% in Ontario. The table
highlights the importance of keeping profits in the company (please refer to the section in the
September 2008 newsletter titled “Keeping Profits in the Company”) which discusses taking
advantage of the low corporate tax rate. By using the methods I’ve described in the March, June
and September 2009 newsletters to access dollars from the corporation on a tax-free or low tax
basis, you can minimize personal draws from the corporation subject to the higher personal tax
rates.
If you are interested in incorporating your business in the coming year, a special election form is
typically filed by the accountant to defer income taxes on the appreciation in the value of your
unincorporated business since you began your business.
Stay tuned….
My next newsletter will discuss holding companies and the pros and cons of setting them up.
While minimizing taxes is important, the following year end tax
tips should not take your attention away from making sound
economic decisions with your financial planner.
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