How can I avoid paying income tax?
As long as we are earning income, we will have to pay income tax. The idea is not necessarily to avoid paying tax altogether, but to avoid paying unnecessary tax and to defer tax payments as long as possible. The government has established many different incentive programs for us, and many of these centre around saving for our retirement or our children's education. The long term impact to your overall net worth is very much worth the effort of ensuring that you take full advantage of Retirement Savings Plans (RSPs) and Registered Education Savings Plans (RESPs), and that your investments are appropriately structured from a tax perspective.
Even my accountant says it: My paperwork is a nightmare!
Keeping track of the multitude of receipts, tax slips, and statements that we receive each year from our employer, financial institutions, and various government organizations can be an extremely difficult thing to do. This task is made even more daunting when you're trying to figure our which of those documents that you've been sent are actually required in order to file our tax returns. More paperwork and less organization tends to translate directly into more time with our accountant and more likelihood of something being missed on our tax return. This costs us money. At JV, we will help to decipher your paperwork and work with your accountant to make this process as effective as possible from both a cost and time perspective.
Do I need to be involved?
You will always need to be involved in your personal taxes to a certain extent, but a lot of this job can be delegated. We create a 'Joint Venture' relationship with our clients and their tax advisors to create tax efficient solutions that improve our clients' quality of life. When you are already paying for the professional assistance relating to your taxes and your investments, it only makes sense to use a coordinated approach to address any tax considerations related to these two important components of your financial well being.
Should I consider incorporating my business or professional practice?
Some professionals find themselves earning an income in which a significant portion of their earnings are taxed at the highest marginal tax rate. In these instances, a discussion with your tax advisor may uncover an opportunity to incorporate----in other words, to have your business or professional corporation earn the income and pay you a salary as an individual. Depending on your cashflow requirements and saving ability, a corporation may be an efficient way to manage your earnings, providing substantial tax savings and deferral opportunities.
How do I get money out of my business?
Tax considerations surrounding professional corporations and small businesses are varied and complex. Although corporations are great for saving, at some point the money will need to flow out to the individuals involved. Two common examples that arise are for an immediate cash requirement (e.g. a dividend, a shareholder loan), or in 'wrapping up' the corporation once there is little or no active income involved. Your JV advisor can work closely with your accountant to ensure that your investments are appropriately structured during such an event, minimizing any related tax impacts.
I have already established my business/professional corporation.
You may be enjoying some of the benefits of being self-employed, but have you looked at everything? As time goes on and tax laws evolve, additional opportunities from an investment perspective may arise that were not previously applicable. Some of these may include initiating an Individual Pension Plan (IPP), corporate-owned life insurance, or income splitting with your spouse. JV has the expertise and additional professional relationships necessary to work with your tax advisor in these complex circumstances.
