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Discussion Starter #1
I've start a new corporation ( 2 equal share holders) and was wondering if there any way of reducing my current year taxable income. I was working this year and am in the high tax bracket. Is there anything I can do to reduce this years taxable income with my newly establish corporation (6 months). Lump sum loan??
Thanks in advance.
 

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We cannot tell whether your income/work was inside the LTD or personal . Are you trying to reduce personal tax or your corporation"s? What are you thinking of regarding the loan? From who to whom? Why?
 

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Discussion Starter #3 (Edited)
I'm trying to reduce my personal income tax or defer it till next year. The loan would be used as start-up capital for the business. The loan would be from myself to the corporation for start-up capital, purchase of equipment, material ...
 

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You can only deduct (in corp or personal) interest expense charged during the year. Since it is now the end of the year, no interest would accrue.

A loan to the corp would create an expense in the corp and income to you personally. How would that reduce your personal tax?
 

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I've start a new corporation ( 2 equal share holders) and was wondering if there any way of reducing my current year taxable income. I was working this year and am in the high tax bracket. Is there anything I can do to reduce this years taxable income with my newly establish corporation (6 months). Lump sum loan??
Thanks in advance.
Hi Shawn

We would have to know some more about your situation before making any recommendations. It's true that interest from a loan you provided to the company would result in extra tax for yourself personally, however you're not required to charge interest on the loan.

What is the year end of the corporation?

If you have significant employment income personally and less corporate income there's probably no way of using the corp to reduce your personal tax bill, however if you have some extra capital available you can always contribute to your RRSP to reduce your personal tax bill. Some other items you should consider are as follows:

To reduce corporate tax (if you haven't filed already):
  • Purchase capital assets that are eligible for tax depreciation e.g. CCA
  • Pay a reasonable salary to owner/employees. (most likely not an option in your case)
To reduce your personal income:
  • Donate to a registered charity before the end of December
  • Contribute to your RRSP before March 1, 2010
  • Sell securities with accrued losses to offset any capital gains in the year
  • Pay any investment management fees by December
  • Take advantage of the Home Renovation Tax Credit
There may be more you can do, however without further information about your situation it's difficult to assess your financial needs.

Feel free to give me a call if you want to chat.

Cheers

Phil
 

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Discussion Starter #6 (Edited)
Let me clarify a bit about my situation. I've recently taken a buyout from my old employer, the package included a large sum payable this year( 40% taxable) and the rest next year. This year, I already have my income from employment + now my buyout. Since I'm starting a new corporation, I want to possibly use the buyout money as an investment into a canadian corporation. Hopefully, deferring the tax for the buyout till next year or the following based on when it makes most sense for the corporation to pay me back (in the mean time collect interest). I'm not sure if I can do this or how? If i can do this, do I need to do this before the end of the year.

My understanding comes from my family member but they have a corporation. When for example it sells a property, that instead of paying capital gains from the sell of the property that year, she re-invests into something else.
 

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Let me clarify a bit about my situation. I've recently taken a buyout from my old employer, the package included a large sum payable this year( 40% taxable) and the rest next year. This year, I already have my income from employment + now my buyout. Since I'm starting a new corporation, I want to possibly use the buyout money as an investment into a canadian corporation. Hopefully, deferring the tax for the buyout till next year or the following based on when it makes most sense for the corporation to pay me back (in the mean time collect interest). I'm not sure if I can do this or how? If i can do this, do I need to do this before the end of the year.

My understanding comes from my family member but they have a corporation. When for example it sells a property, that instead of paying capital gains from the sell of the property that year, she re-invests into something else.
Hi Shawn

Unfortunately it doesn't appear as thought you'll be able to avoid or defer any of the tax on your 2009 employment income and/or bonus.

I'm not really sure what kind of strategy your family member is using, however in your case there isn't anyway of "shifting" income from yourself to the corp in order to avoid or defer tax.

What your family member may be talking about is the "property replacement rules". These rules allow for a corporation to defer tax on the sale of a property (must be used for business purposes and not rental) when they purchase a similar property of equal or greater value.

If you invested the money in your Canadian corporation you wouldn't be able to claim any type of deduction and if you charge interest you would have to pay tax on the additional interest.

You could invest the money into your RRSP (as mentioned above). Or purchase "flow through shares" for a large tax deduction, however investing in order to save tax is not always a smart idea.

Please don't hesitate to give me a call if you want to discuss further.

Cheers

Phil
 

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If it was a sole proprietorship business you were setting up it would be a lot easier to claim losses. After all businesses can lose money in the first several years and they can be claimed directly against your income. The downside to this is that when you start making money you are taxed at the personal tax rate which is higher than the corporate rate.

Corporations being treated as a separate entity do get taxed differently. To my knowledge corporate losses are not transferable to the owner in the same way sole proprietorships are.
 
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