"’Bonusing down’ is something small business should definitely consider," said Saverino, "It means bringing down the level of income in the business to a point where it can receive a preferential tax rate; for example, by taking out a salary from the business. Specifically, businesses can receive a preferred tax rate if their income is below $225,000 for 2003. For 2004, the required income level is $250,000."
Typically, the rate of taxation for businesses that take advantage of the preferential rate comes out to about 18 per cent; without it, their rate of taxation as a percentage could be as high as the upper 30s.
Claim Those Extra Credits
A possible boon to printers who invest heavily in upgrading their computers and other machinery is the Scientific Research and Experimental Development Credit. He said this credit is available to businesses that not only just purchase or lease but also in some way enhance the technology or equipment they’re using. Upgrades to hardware or software could apply for this credit, provided there is some type of technological advancement behind the upgrade. Credits are available on both federal and provincial corporate taxes for qualified business investments of this kind.
Saverino attached certain provisos to claiming the Scientific Research and Experimental Development Credit, however. He said it’s important to look exactly into the type of upgrade being claimed. Preferably, you should engage a tax specialist to perform a review of the type of expenditures involved to see if they qualify. Filing requirements also include a technical analysis and report to be submitted to Canada Customs and Revenue Agency along with the claim.
A further credit that may be beneficial to some printers is the Ontario book publishing tax credit. According to Saverino, some restrictions on this credit include that it is only available to controlled corporations for expenses incurred for publishing literary works written by first-time Canadian authors.
More Helpful Tax Hints
"Another thing you should look at are amounts within a corporation that could be distributed tax free to the shareholders," said Saverino. Specifically, he was referring to the funds contained within a corporation’s Capital Dividend Account. But on a cautionary note, determining what goes into the Capital Dividend Account requires a lengthy computation that, once again, is better left to a specialist with a high degree of expertise. But once you know the balance in that account, it could be issued tax-free.
"Another thing you have to watch out for is shareholder loans,” said Saverino. "If you’ve taken out a loan from the company, be wary, because that loan could be subject to tax at the shareholder level (in other words, taxable to the shareholder personally – meaning you!) unless it’s repaid to the corporation within a year." The time limit means a year calculated from the corporation’s year-end for the year in which you took out the loan.
Saverino also pointed out that if, like most printers, your business has experienced any slump periods recently, remember that income gains may be carried back for up to the prior three years. Conversely, any losses may be carried forward for seven years to be applied against future income.
Sorry, no crystal ball
Sensibly, Claudio refused to give me any specific economic forecasts for the printing industry in the coming year, but he did make a couple of comments on the current state of the economy.
For one thing, he observed that the recent downturn and fluctuation in value of the American dollar means that printers who are exporting to the States may not be faring too well. He said companies involved in international trade might benefit from consulting multinational financial firms, since they can provide access to a wide variety of geographically diverse expertise.
Saverino also believes the local economy is turning around: "With low interest rates, we think there’s opportunity for the economy to pick up. In fact, it’s one of the best times for it to happen."