Get Ready for Filing Season… starting now!

Get ready for tax filing season… NOW

Now that the calendar has turned from 2012 to 2013, it’s time to get ready for filing your 2012 taxes.  There is no better time to start getting ready than today!  Below you will find some suggestions to help you get started with all of your End-of-Year reporting and tax requirements.

Right away, it never hurts to set up a meeting with your accountant early enough so they still have time to spend with you.  Your accountant will be able to asses your fiscal situation and advise you on things such as your retirement plan, charitable contributions and other deductions that might lower your tax bill, either for 2012 – like making RRSP contributions, or things you can arrange early in 2013 to get you up and running for the year.

Before you meet with your accountant, however, there are some things you should gather and have ready for the meeting:

  • Property tax bills for the year – especially if you use any of your home for business, then you’ll need to know the approximate square footage of your home and the room(s).
  • Letters and receipts relating to charitable donations made in 2012, which must include the monetary value of your gift to the organization, the date and year of the donation and that organizations charitable number (meaning they are legitimate).
  • Relevant reports from whichever of the online bookkeeping tools you are using to capture data.  Be sure the information is accurate and up-to-date.
  • If you hand-write your checks, make sure you have all your receipts and that they are detailed enough to categorize the expense.
  • Medical deductions for the year, if you qualify.
  • Retirement Account information – are they maxed out, have you stayed within the amount available?
  • Bonuses and Gift(s) information – Keeping in mind that employers tend to show their appreciation to their employees by issuing bonuses / giving gifts towards year-end and these are considered taxable benefits.
  • Insurance – Now is also the time to review all of your insurance policies. Life insurance, health insurance, even homeowner’s insurance need to reflect your life situation accurately. Major life changes like marriage, divorce or the arrival of a new baby (or 2) require changes in coverage.  A new job that requires you to travel for business means you have to change your car insurance policy.

Your accountant should also be able to help you keep track of what you received last year in the way of slips and returns and thus advise you what to expect this year and when it should come so that you don’t have to wait until the last-minute to file.

You should also get a box or magazine box and set it up in your office for all the tax information to reside in until you need it at year-end.  There is nothing worse than forgetting to gather something or losing a record at year-end.

End-of-Year preparations don’t have to be stressful and if you need a little more help, you could always hire a bookkeeper to reconcile your chequebook / online purchases with your bank statements among many other things which can simplify your life by keeping your data organized, which ultimately saves time for your accountant (and that saves you money!).

Happy filing!

Ever wondered what a holding company is for the purposes of taxation? Wonder no longer! Read on…

A holding company is a company whose sole purpose is to hold shares in another company.  It does not produce goods or perform services.  

If a holding company owns a majority of shares in that company, it becomes the parent company.

The reasons for establishing holding companies are diverse;

They may be created to operate for a short period of time or as part of a long-term plan. Factors to consider include the nature and revenue of the business, the jurisdiction in which the business owner resides, and the business owner’s long term goals.

Advantages:  Minimizing risks and exposure, a holding company can protect an owner’s interests by keeping creditors at a distance while removing cash from an exposed operating company to a holding company on a tax-free basis.  

In this scenario, owners can take risks through the operating company while limiting the risk to that company and not exposing the holding company because the holding company performs no transactions and therefore does not move cash and other assets around.  The holding company is exposed to risk to the extent of its investment in the operating company.  So if a holding company lends money to the operating company, it can secure the debt and become a secured creditor (A secured creditor is a creditor with the benefit of a security interest over some or all of the assets of the debtor) of the holding company giving the holding company priority when it is time for the debt to be repaid (especially in bankruptcy).

Tax Benefits:  Corporate – Depending on the percentage of outstanding shares held by the holding company in the operating company, the dividends paid to the holding company may be tax-free.  Individual – For shareholders with a high marginal tax rate, a portion of tax on dividends from taxable Canadian companies may be deferred until dividends are paid by the holding company to the shareholders.  You may be able to locate the holding company in a province with a lower corporate tax rate. 

Estate Planning:  Holding Companies may help with succession planning by facilitating the transfer of wealth to the next generation.  Shares in an operating company can be transferred to younger family members through a holding company by way of an estate freeze, structured to cap a person’s tax liability upon his or her death and transfer any future growth to family members.

Disadvantages:  Set-up costs.  Holding companies require additional set-up costs and these expenses can be ongoing, including the cost of preparing annual financial statements and corporate tax returns.  If the number of shares is significant, then this is not so much of a concern. 

No tax benefits or negative tax implications.  As losses realized in a corporation are only available to offset other income earned by the corporation.  Holding companies are also not eligible for the $750,000.00 capital gains deduction. 

Double taxation may exist if personal tax is required to be paid as well as corporate taxes levied on the income earned by the holding company.  To avoid the negative tax consequences associated with the payment of funds from a holding company to a shareholder, include the repayment of shareholder loans and taxable dividends (which may result in a refund of corporate tax to the holding company).

Director’s Liability:  Many moons ago when I worked for the CRA, I came across many holding companies set up in order to protect directors from being responsible for unremitted source deductions, unremitted HST (PST and GST)corporate taxes and they also used passive directors  – usually not involved in day-to-day operations of the business – but they are all still liabile for any debts incurred by the corporation.  Passive directors should of course be aware of what the corporation is doing and should ensure that they are providing due diligence or have director’s liability insurance in place to protect them.