Greenhouse Canada

Business Management
Some timely tax tips


January 28, 2008
By Mike Veldhuizen

Topics

veldhuizengoodAs the
end of the year quickly approaches, it is time to once again reflect on
your financial position, and what you can do to improve your situation
by reducing taxes payable, whether you are an individual taxpayer or an
owner of an incorporated greenhouse operation.

As the
end of the year quickly approaches, it is time to once again reflect on
your financial position, and what you can do to improve your situation
by reducing taxes payable, whether you are an individual taxpayer or an
owner of an incorporated greenhouse operation.

There are many
ways to pay less tax if some planning is done ahead of time. The
balance of this article discusses several things that one should
consider now to help reduce your tax burden when the end of the year
arrives.

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Cash basis taxpayers – Unlike most businesses,
greenhouse operations and other farming enterprises enjoy the benefit
of being able to report their income using the cash method. By using
cash basis of accounting for tax purposes, a greenhouse operator only
has to report income that was received during the year, instead of the
income that was earned during the year. In addition, it means that you
may only deduct expenses, including wages, which have been paid during
the year. Accordingly, to maximize your deductions, you should pay as
much of your accounts payable as possible by year-end. You may also
consider buying inventory or other supplies for the upcoming year so
that the deductions can be taken in the current year. Finally, if your
operations are carried on in a corporation, you should pay bonuses
before the end of the year in order to reduce the corporation’s income
to the small business deduction limit ($400,000 for 2007) to avoid
paying tax at the high corporate tax rates.

RRSPs – As
long as you have contribution room available, you can put money into
either your own or a spousal RRSP, and receive a tax deduction for the
amount you invest. Although the money will be taxable when you receive
the amounts in retirement, you will have had the chance to invest the
taxes you saved in order to grow your investments. Additionally, it’s
likely that you will be in a lower tax bracket during retirement than
during the years you work, which means you will pay less tax overall on
the amount you invest into your RRSP. As of 2007, the conversion age
for RRSPs into a registered retirement income fund (RRIF) increases
from 69 to 71.

Children’s fitness credit – Starting this
year, you will be able to claim a credit for amounts paid to register
your child under the age of 16 in a fitness program, to a maximum of
$500 per year for each child. Qualifying programs must be ongoing,
supervised and involve physical activity in order to qualify. Make sure
to keep your receipts in order to support your claim for the credit.

Pension splitting – Beginning
in 2007, pensioners will be able to “split” certain types of pension
income with their spouse. This will allow a taxpayer in a higher tax
bracket to designate up to 50 per cent of their income to their lower
tax bracket spouse to reduce the overall tax paid by the couple.
Qualifying pension income is dependent on your age.

Donations – If
you are thinking about making a donation to a charity, you need to make
your donation by Dec. 31. You should consider making a donation of
publicly traded shares or mutual funds. As of 2006, if you donate
publicly traded shares to a charity, you will not have to pay tax on
any capital gains and you will also receive a charitable donation
credit for the actual value of the shares donated. This can be a
win-win strategy for both you and the charity.

The preceding
items represent a short list of some of the ways you can minimize
taxes. Other options may be available to you, depending on your
situation. If you think some of these deductions may be available to
you or you have questions about your tax return in general, you should
contact a tax practitioner.

Mike Veldhuizen is a tax manager with the Niagara office of Deloitte. • 905-323-6015, mveldhuizen@deloitte.ca