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Newsletter Page 1 - Toronto Certified General Accountant
Newsletter March 2009
Dear Client or Future Client:
In this newsletter I will be highlighting aspects of the proposed 2009 Federal Budget slated for
small businesses and individuals in a tax planning context.
Tax Planning and the Proposed 2009 Federal Budget
Budget Raises Small Business Corporation Limit to $500,000 from $400,000
Tax plan: Keep Profits in the Company so Tax Savings are Not Lost
Small business corporations can earn another $100,000 of income starting in 2009 and the tax rate
remains at 16.5% in Ontario. Please refer to the section in my September 2008 newsletter titled
“Keeping Profits in the Company” which discusses taking advantage of the low corporate tax rate.
In that newsletter I had promised to discuss ways of accessing dollars from the company on a
tax-free or low tax basis. I will begin to discuss two ways of achieving this with relevance to the
budget: paying salaries to family members and paying yourself rent.
Budget Raises the Basic Personal Tax Credit Amount
Tax plan: Pay Salaries to Family Members (Income Splitting)
The budget raises the basic personal amount that is exempt from tax to $10,320 in 2009 from
$9,600 in 2008. This means that the first $10,320 that every Canadian earns is tax-free. And if you
are employed, the existing Canada Employment Credit of $1,019 added to the basic personal
amount effectively makes the first $11,339 of income tax-free.
If your business pays salaries or wages to family members who have little or no income, the
payment will face little or no tax, but your business gets the tax deduction. It’s a win-win situation
that is “all in the family”.
As long as the pay is reasonable for services provided, your children and spouse can potentially
get up to $11,339 each from your business tax-free. The planning doesn’t stop here. Your children
have now generated RRSP room, which only happens when they earn income. They can start
buying RRSPs at an early age, which grow tax-free until their retirement. The RRSP contribution
does not have to be deducted in their tax return until they need to deduct it in years of higher
income, when they will get a bigger bang for their buck.
Budget Introduces a One-Time Home Renovation Tax Credit (HRTC)
Tax plan: Pay Yourself Rent and Claim the HRTC for Personal-Use Expenditures
HRTC The Home Renovation Tax Credit is a one-time personal tax credit for work performed or
goods acquired for a dwelling that you own and use personally (principal residence), including your
home or cottage. The credit applies to eligible expenditures of more than $1,000, but not more
than $10,000, made after January 27, 2009 and before February 1, 2010. The tax credit translates
to actual tax savings of 15% of the amount spent on home renovations.
Why then, is the maximum tax savings that you hear on the radio $1,350, or 15% of $9,000, and
not $1,500, or 15% of $10,000? The answer is you don't get the 15% tax savings on the first
$1,000 spent on home renovations. To get the maximum tax savings of $1,350 then, you would
need to spend $10,000.
The HRTC is family based; a family is considered to consist of an individual or an individual and his
or her spouse or common-law partner, including children who will be under 18 years of age at the
end of 2009. A family is allowed a single HRTC credit that may be shared within the family.
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Toronto Certified General Accountant
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