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Welcome to
this month's edition of Financially Fit! Our goal is to provide you
with current articles on various tax and business topics. The
articles are intended to keep you up to date on trends and issues
that may impact your business and personal financial affairs. Please
contact us if you have questions about any of the issues
discussed.
Borrowing from your company
If you are
borrowing from your company for a personal purpose, make sure that
an acceptable arrangement for repayment is made when the loan is
originally taken. A taxpayer and his wife were not that prudent.
They borrowed money from the company in 1998 and 1999, but the loan
repayment documents were only drawn up in 2000. CCRA assessed and
taxed the shareholders in 1999 and 2000 for these advances. Not only
did they pay the tax on the loans being included as income, but
interest on the taxes was due from the time the loans were advanced.
The taxpayers appealed, but the tax court upheld the assessment by
CCRA.
Business Meals and
Entertainment
In general
only 50% of expenditures on meals, drinks and entertainment may be
deducted against income earned. There are some exceptions to this
rule where 100% can be deducted.
- An amount related to
a fund raising event of which the primary purpose is to benefit a
registered charity.
- An amount related to
a reimbursement of expenses. Example: if you provide a statement
of account to a customer and request a reimbursement for the
business meal expenses, you will have the full deduction for the
expense. (an intended flow through)
- An amount incurred
for food, beverages, or entertainment, which is made available to
all employees of the employer at a particular place of business.
This is intended to allow a full deduction for events like
Christmas parties, staff events or event meetings.
- An amount incurred
for items consumed or entertainment enjoyed while traveling on an
airplane, train or bus.
Golf dues & fees or club
fees
No deduction
is allowed for any expense incurred by the corporation in respect of
membership fees or dues, which entitles its employees or anyone else
to use the facilities of any club whose main purpose is to provide
dining, recreational or sporting facilities to its
members.
While no tax
deduction is permitted, it can still be advantageous to pay for such
expenses with lower after-tax corporate dollars. For example if the
golf course fees are $100.00 and this amount was paid by the
company, the tax cost is $19.00 as a result of the add back to
corporate taxable income. If this fee is paid outside the
corporation and assuming the high marginal tax rate, the tax cost is
$78.00.
Tax Planning
Tax planning
is not a year-end task. Rather it should be considered with each and
every financial transaction. Be regular at asking simple questions
like: does this trip benefit my business? Does dining out with this person
have the potential to generate income for me in the near
future?
We have a
legal duty to pay taxes. With proper planning you will legally pay
the correct and least amount of taxes that our system
allows.
Remember TAX
Planning is NOT tax evasion or tax avoidance. (that's illegal)
www.couzelis.com
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