Frequently Asked Questions About Taxes
Filing taxes at the end of the financial year can be a daunting task, even the smallest of errors could cost you. Moreover, with the continually changing tax laws, clients have a ton of questions but often find answers difficult to come by. To help you gain some clarity, Gray & Associates want to arm you with the most accurate information available and to do this we have answered some of the most frequently asked questions about taxes.
1. What tax rate will apply if I sell something and realize a gain?
Tax rates applicable to individuals are graduated. In other words, the tax rate payable on your gains will depend on the amount of gains realized and other taxable income for the year. The higher your total taxable income (other income plus taxable gain), the greater the tax rate will be.
2. I bought gold bullion a few years ago, and it appreciated in value. What amount of tax will I pay if I sell it?
First, you will need to determine if the profit realized on sale is a capital gain or an income gain. Currently, fifty percent of capital gains are subject to income tax; whereas, hundred percent of income gains are subject to income tax. You must keep in mind that not all gains are subject to capital gains tax rates. For example, if you have purchased a property for speculation and no income such as rent, interest, dividends, etc., are earned from the property, the sale may be considered as an adventure in the nature of trade with the entire profit being subject to income tax.
3. If I sell my business, can I claim a capital gains exemption?
Only qualifying small business corporations shares (and qualified farm property) are eligible for the lifetime capital gains exemption. If your business is incorporated, you may be entitled to the capital gains exemption if you sell the shares of that corporation. Otherwise, the capital gains exemption does not apply.
4. Should I buy a car personally or in my corporation?
This will depend on the use of the automobile and numerous other factors. The CRA has long since eliminated any tax benefits for business owners who wish to purchase automobiles or any other personal use assets in a corporation. In short, if the automobile is driven for personal use, including to and from work, the shareholder/employee will be subject to taxable benefits on the personal use and availability (even if not used) of the automobile.
5. Can I pay dividends to my spouse and kids if they are shareholders?
You can, but depending on their involvement with the corporation and the nature of the corporation’s business, the dividends may be subject to the new Tax On Split Income (TOSI) rules. These new rules, effective January 1, 2018, seek to apply a special tax at the highest marginal tax rate on dividends and capital gains realized on the shares by family members.
6. Can I pay my spouse and kids a wage or salary?
Yes, but the amount paid to each individual must be reasonable in the circumstances. For example, paying your three-year-old any amount of wage might be considered unreasonable. However, if your child or spouse is perhaps a loan guarantor and/or a director of the corporation, a wage or guarantee fee of some amount may be considered reasonable. In case you are paying a wage or other remuneration to a relative, be sure it is supported with evidence and documentation of work done and paid for. The risk of being denied the unreasonable portion of a salary paid to a relative could trigger additional corporate income tax and interest. In addition, the CRA could assess a taxable benefit, interest and possible penalties to the shareholder with no offsetting deduction to the corporation.
If you have any more questions on taxes, get in touch with the experts at Gray & Associates. As chartered accountants in North Vancouver, B.C, we provide accounting and tax solutions to owner-managed small to medium-sized businesses. To learn more about how we can help you, please click here or contact us by clicking here.