2023 Tax Updates
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CCPC (Canadian Controlled Private Corporation) tax rates:
CCPC small business tax rate: same at 12.2% in 2023 (combined Federal and Ontario, for taxable active business income up to $500,000, payable 3 months after the fiscal year-end, otherwise 2 months after the fiscal year end).
CCPC passive income tax rate: remained at 50.17% in 2023. Refundable portion remained at 30.67%. Note: Any CCPC passive income above $50,000 will grind down its small business limit at a 5 times rate (limited to federal tax only, not for Ontario SBD). Contact us for strategies to minimize.
Refundable Part IV tax rate and dividend refund rate: on taxable dividends paid by a corporation remained at 38.33% in 2023. Note: The dividend refund is now split into a complex eligible and non-eligible RDTOH regime. Contact us for more details.
Canada Emergency Business Account (CEBA) – If you still have a loan under the CEBA program, you must repay the outstanding balance of your CEBA loan (net of the amount forgiven) by January 18, 2024, to qualify for the partial loan forgiveness. Otherwise, the full loan balance will be converted to a three-year term loan with 5% annual interest and must be fully paid by December 31, 2026.
Beneficial ownership registries: Already a requirement for federally incorporated companies. Provincial requirements for privately-held companies to maintain ownership registries proposed in Ontario. Note Ontario corporations must file an annual return via the Ontario Corporate Registry.
Small Business Owners
Preferred salary/dividends mix: Determine the preferred mix of salary and dividends for you and your family members for 2023 with consideration for the TOSI rules. Discuss with us for optimal dividend for family members, if meeting the requirements for excluded business or excluded shares.
Consider paying a reasonable salary instead, especially for a personal taxable income below $55,000, with proper support to justify the pay.
Paying enough taxable dividend to receive all the RDTOH refund inside the company.
Salary will be more favored in 2024 owing to the new AMT regime.
Bonus accruals at year end must be paid within 179 days after the corporate year end, including appropriate source deductions and payroll taxes to be remitted on time.
Tax-effective dividends: Make tax-effective dividends such as non-taxable capital dividend before a capital loss is triggered.
Preserve cash in the corporation in times of uncertainty.
Accelerate purchase of depreciable assets before the year end. Take advantage of the Accelerated Investment Incentive, which allows an increased first-year capital cost allowance (CCA) deduction. (And the immediate expensing of capital property of CCPCs – up to $1.5 million per year for eligible property acquired by CCPCs after April 18, 2021 and before December 31, 2023.)
Purchase eligible zero-emission vehicles and take advantage of an immediate write-off (i.e. 100% CCA deduction) available for purchases after March 18, 2019, in the year the vehicles first become available for use (subject to a gradual phase-out after 2023 and before 2028).
Claim a business reserve to defer tax on related profits by claiming a reserve on unpaid amount over a maximum of three years, if you sold goods or real property inventory in 2023 and proceeds are payable after the end of the year.
Claim a capital gains reserve – if you receive proceeds that include debt – over a maximum of four years (resulting in the capital gain being included in income over a maximum five years).
Shareholder loans to your corporation – Determine whether your corporation would benefit from deductible interest on shareholder loans made to the corporation, rather than additional salary or bonus payments that may be subject to payroll taxes.
Repay shareholder loans from your corporation on later than the end of the tax year after the one in which the amount was borrowed.
Use of private health services plan (PHSP) premiums instead of non-deductible medical expense, but careful where the sole shareholder is the sole employee.
Buy company owned life insurance policy to utilize corporate retained earnings and defer passive income.
Track motor vehicle use for business – maintain a logbook of mileage (including date, destinations, distance KMs, and purpose). Try to increase the business mileage to greater than 50% to reduce the standby charges of a company car.
Apply for SR&ED tax incentives: CCPC may have the ability to access the enhanced (and refundable) 35% SR&ED ITC. Ensure claims in respect of SR&ED expenditures or ITCs are filed by the deadline.
Taxable capital: If your CCPC’s taxable capital for federal tax purposes in 2023 exceeds $10 million, together with all associated companies, it will start losing access to the small business deduction and the enhanced 35% SR&ED ITC rate in 2023 (with access lost entirely once taxable capital exceeds $50 million, or for tax years beginning before April 6, 2022, $15 million). Monitor your taxable capital and discuss with us for ways to reduce taxable capital before your company’s year end.
Create a company stock options plan: To potentially obtain a 50% income deduction (note the new restrictions to $200,000 is for public companies only, not impacting CCPC).
Lifetime capital gains exemption (LCGE): Structure the business so that corporate shares become or remain eligible for the $971,190 (indexed) lifetime capital gains exemption (LCGE), which is available to all individuals. Discuss with a tax specialist for the complexities, including estate freeze and intergenerational transfers.
Income from property: may be eligible for small business rate if CCPC has more than five full-time employees.
Mandatory e-filing of corporate income tax return – to avoid penalties – if corporate annual gross revenues exceed $1 million.
PSB Issue: Be mindful of personal services business (PSB), tax rate is at 44.5% in 2023. See our website: https://www.impactcpas.ca/post/tax-implications-for-employee-vs-self-employed and discuss with us.
QST/PST registration: If your business makes digital and certain other supplies to “specified Quebec consumers”, even if it is not resident in Quebec and has no physical establishment in the province, consider whether it is required to register under the simplified QST regime (threshold $30,000). Similar requirement exists in BC as well for its PST registration with a threshold at $10,000.
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