Ten Year End Tax & Finance Tips for Businesses and Business Owners
November 17, 2023
The economic landscape has undergone a major shakeup over the past few years. Financial and tax strategies that once made financial sense for many businesses and business owners may no longer be the best approach. At the same time, some new opportunities for year-end tax savings have arisen.
In this webinar recording, GGFL Partners Josh Engel and Natalie Evans discuss year-end tax opportunities that can make a real difference to the short and long-term financial health of your business and personal finances in 2024.
Specific business and personal tax issues that Natalie and Josh cover include:
- CEBA loan repayment
- Using capital losses
- Tax benefits of immediate expensing
- Grants and incentives, including zero emission vehicles
- Delaying the sale of capital assets until 2024 – claim one additional year of CCA
- Applying for the accelerated investment incentive property (AIIP)
- Small business deductions
- Compensation strategies for business owners
- Alternative minimum tax and how it might affect your planning
- Personal tax deduction reminders
If properly leveraged, these strategies are meant to help ensure your financial resources are working as hard for you, as you work for your business.
CEBA Loan Repayments
The Canada Emergency Business Account (CEBA) loan repayment landscape has evolved. Some had hoped for an announcement of 100% loan forgiveness, but it wasn’t delivered. It’s time for business owners to shift, with a new focus on updated repayment timelines and options. The repayment deadline, originally set for December 31st, 2023, has been extended to January 18th, 2024—an essential date to protect access to the maximum forgivable portion of the loan. Partial loan forgiveness may be achieved if a financing application for the repayment of CEBA has been applied for by January 18th, 2024. The deadline for partial forgiveness is March 28, 2024.
After January 18th, 2024, the interest-free period concludes, ushering in a 5% interest rate on a 3 year term loan, set to end on December 31st, 2026.
While the allure of a 5% interest rate may seem enticing, forfeiting the substantial 33% debt forgiveness poses a significant drawback. Delayed repayment and no debt forgiveness would significantly impact the overall cost. A $60,000 CEBA loan would likely exceed a cash outflow of $68,000, compared to the initial $40,000 if paid on time, factoring in the $20,000 forgivable portion.
The best option is to repay the full CEBA loan by the end of 2023. However, businesses facing liquidity challenges are encouraged to explore repayment options. Financial institutions are actively promoting conversion offers, allowing businesses to sidestep repayment of the forgivable portion.
Businesses are advised to assess their financial positions, weigh the costs of delayed repayment, and explore available repayment options to navigate the post-CEBA landscape effectively. The decision-making process should prioritize maximizing forgiveness while mitigating financial risks associated with the 5% interest rate.
Using Capital Losses
As the year draws to a close, investment advisors are often suggesting tax strategies to mitigate the impact of capital losses, especially in downturns. Capital losses play a pivotal role in optimizing the Capital Dividend Account (CDA), particularly for those with a corporation.
The CDA allows 50% of gains from investment sales to be tax-free and accessible through an election form. However, capital losses diminish this account balance. To leverage capital losses effectively, coordination between advisors and accountants is crucial. If you are considering triggering capital losses, it’s advisable to consult an accountant to ensure that the CDA election is filed, declared, and paid before realizing losses. This strategic move allows the offsetting of capital gains while preserving the tax-free nature of the CDA.
Capital losses are only applicable against capital gains and can be carried forward indefinitely. There is also an option to carry back losses up to three years for potential tax refunds. Collaboration between advisors ensures a well-timed and efficient approach, maximizing benefits such as tax-free CDA funds and minimizing corporate taxes when appropriate.
Grants and Incentives
The government has implemented several initiatives to promote the adoption of zero-emission vehicles, offering significant incentives for zero-emission vehicles purchased on or after March 18th, 2019, and are in use before 2028. This program presents substantial benefits, notably an increased tax deduction cap for these vehicles. While regular vehicles are limited to a maximum deduction of $34,000 plus sales tax, zero-emission vehicles enjoy an extended limit of $59,000 plus sales tax.
However, unless a vehicle is used more than at least 50% for business purposes, it’s recommended to own it personally and seek reimbursement from the corporation for business-related mileage. Corporate ownership of a vehicle, regardless of emission type, used for personal purposes involves complex taxable benefit calculations and reporting.
Additionally, individuals or businesses drawn to zero-emission vehicles for environmental reasons should be aware of potential complications. Despite their eco-friendly features, these vehicles can be costly, potentially attracting luxury taxes. Luxury taxes are non-refundable, even if the vehicle proves unsatisfactory or is returned. For more on purchasing electric vehicles, click here.
The government is also offering grants to support business growth online, including up to $15,000 for technology adoption. The grant aims to assist businesses in developing a digital adoption plan. The Business Development Bank of Canada (BDC) facilitates 0% interest 5-year term loans ranging from $25,000 to $100,000 to implement these plans. This financing can be crucial for updating equipment or making day-to-day improvements to digital components, ensuring businesses stay competitive in an increasingly digital landscape.
To get a list of funding programs available to your business please visit the ISED Business Benefits Finder.
Accelerated Investment Incentive Property
Accelerated Investment Incentive Property is a recent government initiative that promotes the adoption of specific clean energy equipment in manufacturing and processing. Eligible property acquired after November 20th, 2018, and in use before November 2028 qualifies. Benefits vary based on property type, with deductions ranging from 1.5X to 3X the usual amount until the end of 2023. From 2024 to 2027, this benefit is gradually reduced. The deduction during this phase is 1.45X the standard amount. It’s advantageous for industries with qualifying property to make acquisitions before the end of 2023, as the initiative phases out through 2027 and concludes in 2028. Notably, this doesn’t apply to assets under full expensing. Although it doesn’t alter the total deduction over an asset’s life, it accelerates upfront benefits, similar to immediate expensing.
Compensation Strategies for Business Owners
Compensation strategies for business owners is far from a one-size-fits-all approach. The overall tax rate, encompassing both corporate and personal aspects, remains relatively consistent whether opting for a salary or dividends. However, opportunities lie in strategic income distribution, especially to family members in lower tax brackets. However, the landscape has evolved, with Tax On Split Income (TOSI) rule changes adding complexity to the once straightforward decision-making process.
Salaries provide earned income, crucial for RRSP contributions. Dividends do not qualify for such contributions. Childcare costs add further consideration as the lower-income spouse can only claim expenses against earned income, potentially limiting benefits for those relying solely on dividends. The Canada Pension Plan also requires contributions through salary to ensure entitlement to benefits in retirement.
Relying solely on dividends may be advantageous for companies grappling with accumulated refundable taxes, offering potential savings, if executed strategically. Accrued bonuses, if paid out within six months, can be deducted as expenses, providing a means to shift tax burdens and optimize financial outcomes.
Personal Tax Deduction Reminders
The maximum TFSA contribution for 2024 is increasing to $7,000, with a lifetime limit available for those who haven’t reached it. RRSP contributions for 2023 have a deadline of March 1st, and contribution limits are based on prior years’ earned income. Making contributions earlier in the year allows for potential growth within the RRSP. It can be advantageous to carry forward unused deductions for future tax advantages, depending on anticipated future income levels.
Charitable donations must be paid, not just pledged, before the end of the year to qualify for tax breaks. There is currently no impact on Alternative Minimum Tax for the current year when donating shares, however that is subject to change in 2024.
Those making installment payments and general payments to the Canada Revenue Agency (CRA) should note that late payments may incur non-deductible interest at a higher rate than what CRA pays for refunds. CRA interest charged on late payments is expected to rise to 10%.