The 2009 federal budget contained two changes to tax rules that will help you save money. Don't miss them. In these challenging financial times, you want to take advantage of every break you can catch.
Business Income Tax
In past years, the tax system has given owners of Cana-dian-controlled private corporations (CCPCs) a break by taxing business income at 11% federally on the first $400,000 - an eight-percentage-point saving on earnings above $400, 000, which were taxed at 19%. The 2009 budget increases the annual amount of business income eligible for the reduced tax rate - known as the "small- business limit" - to $500,000. That means companies generating earnings of more than $400,000 can now save up to $8,000 a year on their taxes. The change is retroactive to Jan. 1 of this year. If your company operates on a non-calendar tax year, you'll still be able to apply the increased limit to earnings generated in 2009 on a pro-rated basis. Note, however, that if you own "associated" corporations - generally, if you own more than one company or if a "related person" owns more than 25% of another corporation - the limit must be shared among the firms.
There are also tax-administration benefits with the increase in the small- business limit. CCPCs with taxable incomes from the previous year that are below the small-business limit are given three months after year-end, instead of two, to pay any balance owing of corporate taxes. With the increased limit, more companies will be able to take advantage of that extra time. Additionally, more companies will now be able to use tax provisions that allow firms that earn less than the limit to pay tax instalments quarterly instead of monthly.
Computer Equipment and Software
To encourage investment in computer systems, this year's budget includes a temporary 100% tax depreciation rate on purchases of eligible computers, peripherals and software - as long as the equipment is bought after Jan. 27 of this year and before February 2011. This temporary change means that a business can now essentially write off the cost of eligible computer equipment in the year of acquisition, as long as the purchase is made between the cut-off dates. To qualify, computers and systems software must be situated in Canada and acquired either for use in business conducted in Canada or for the purpose of earning property income (such as rent) from property situa-ted in Canada. This change applies to both incorporated and unincorporated businesses, including professionals.
Jamie Golombek is managing director, tax & estate planning at CIBC Private Wealth Management. He will host a reader Q&A on March 19 at 11 a.m. to 2 p.m at http://www.financialpost.com/magazine.