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Personal Real Estate Corporations (PRECs) in Ontario

Personal Real Estate Corporations (PRECs) in Ontario

Great News to Ontario Real Estate Professionals… Personal Real Estate Corporations (PRECs) in Ontario

Today, The Government of Ontario announced key strategic changes which will modernize the rules for registered real estate brokerages, brokers, and salespersons across the province of Ontario. Phase One was announced today, Oct.1st 2020, includes regulations that closely align real estate professionals with modern business practices.

The new measures will Allow real estate professionals to incorporate and be paid through Personal Real Estate Corporations (PRECs). For more information please visit us at www.ontrackaccounting.com

This is a result of efforts which started over a decade ago to help Realtors® achieve much needed tax fairness, which will result in a more efficient business environment, by getting paid through Personal Real Estate Corporations (PRECs) in Ontario.

As a Real Estate Professional – What does this mean to you to have a Personal Real Estate Corporations (PRECs) in Ontario ?


Five main tax-saving opportunities

It is very important and central to understand the tax benefits of incorporation, and it also comes at a cost and some additional responsibilities.

The Basics:

  • The corporate Tax Rate is 12.5% on the first $ 500,000 for small business corporations
  • The marginal tax rate on earnings above $220,000 per year is 53.5%
  • Of course, once you withdraw funds from the corporation, that money is subject to your personal tax rate.

With a bit of tax planning, you have a great opportunity to minimize the amount of taxes you pay if you setup a Personal Real Estate Corporations (PRECs) in Ontario. As professional Tax Accountants in Mississauga, Oakville and Downtown Toronto we specialize in corporate tax filing and tax planning for real estate agents

 

1- Tax deferral

# One of these benefits is the ability to defer taxes by earning your commission income inside your Personal Real Estate Corporations PREC, which is taxed at a lower rate than personal income tax rate. Allowing the excess income to be invested inside the corporation, with personal taxes limited to only what you draw out as a salary or dividend.

Shall you take out a salary or dividends or a mix of both ???
That is a whole different conversation which needs to be looked at on each individual situation
If you have any questions regarding your tax planning, please feel free to contact us at www.ontrackaccounting.com


2- Income Splitting

# Two of benefits from setting up a Personal Real Estate Corporations PREC is the opportunity to income splitting. However, this area is very crucial because few years ago, the federal government has established strict rules around Taxes on Income Splitting.

You have two options to use in your Personal Real Estate Corporations PREC to split income with lower-earning family members by paying your family members a salary or issue them dividends.

The condition is that, when paying salaries, the salary must be for “reasonable services performed”, which means your family members must be actively engaged in the business.

You can also pay your family member a reasonable amount of dividends if your family member is actively engaged in the business and is averaging at least 20 hours a week )or is receiving a reasonable amount of dividends based on their work performed, property contributed, or risks assumed relative to the corporation.

These are very strict rules introduced by the federal government

 

3- Declare dividends Versus taking a salary

# Three of benefits from setting up a Personal Real Estate Corporations PREC is that the Real estate professionals who are self-employed are pay CPP both the employee and employer portion. The combined amount of CPP is currently around $ 5800

When you are incorporated, you will have the opportunity to pay yourself either a salary or dividends. If you pay yourself a salary, you’ll still need to remit CPP. But if you pay yourself a dividend, CPP contributions aren’t required, leaving you with excess cash to invest in other income-producing investments.

So shall I take a Salary or Dividends ? or a mix of both ???
That is a whole different conversation which requires a more in-depth conversation and requires we look at each individual situation. Be careful of the effect of paying yourself dividends and the impact of that on claiming child care expenses and making RRSP contributions.

If you have any questions regarding your tax planning, please feel free to contact us at 416.454.8812
As professional Tax Accountants in Mississauga, Oakville and Downtown Toronto we specialize in corporate tax filing and tax planning for real estate agents.

 

4- Timing your Pay

# Four – In Canada, the more money you earn in a year, the higher your tax rate will be. And the lower money you earn in other years, the lower your tax rate will be —This is a very simple technique, so it makes sense to withdraw funds during a slow year for example or upon retirement or in a year where you decided to take a tour around the world and your income will be lower or for example if you ’re taking a year off as a parental leave.


5-  Investing Your Retained Earnings Inside the Corporation

# Five – When you leave the excess income inside the corporation and pay the lower corporate tax rate of let’s say 12.5%. You should only take out what you need outside the corporation and do not take out all what you earned. This would allow excess income inside the corporation to accumulate and may be after a year or few, you may want to invest the money inside the company, rather than taking it out and getting highly taxed on your personal hand with high personal taxes rates. Since the personal taxes only applies when you draw out funds as either a salary or dividend. However, the catch here is that the return on Investment (income generated from the investments)  inside the corporation gets taxed at a  higher since it is considered to be an inactive income.

Investing under a corporation and taxes on passive Income inside a corporation.
That is a whole different conversation which needs to be looked at on each individual situation
If you have any questions regarding your tax planning, please feel free to contact us at www.ontrackaccounting.com

The process of being incorporated can be a bit complex and dynamic, however it is can be an excellent tool for real estate agents to maximize their tax saving and keep their hard-earned commissions in their corporations.

With a bit of tax planning, you have a great opportunity to minimize the amount of taxes you pay. As Professional Tax Accountants in Mississauga, Oakville and Downtown Toronto, we specialize in corporate tax filing and tax planning for real estate agents

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Accountant for Year End

Tax Saving Strategies for Pharmacists

  • Whether you are an existing pharmacist with years of experience or if you are just getting started.
  • Whether you are a Staff Pharmacist, Relief Pharmacist or a Pharmacy Owner.
  • Whether you own one Pharmacy, or you own multiple pharmacies

As Professional Accountants in Toronto Downtown, we specialize in Pharmacy Accounting and Tax Planning.
We work with all types of pharmacists, Staff Pharmacists, Relief Pharmacists, New and Existing Pharmacy owners.
We provide Free Initial Consultations.

 

We all know the changes and challenges the industry is facing today

  • 25% – 40% decrease in generic prices
  • Costco confusion regarding rebates which are causing more reductions
  • New Proposed reductions on claim processing fees and MedsChecks Payments
  • Over Supply of Pharmacists in Toronto, Mississauga, Oakville and most of the GTA
  • All resulting in lower wages, staff cuts and reducing profits

 

Staff Pharmacist:

If you are a Staff Pharmacist working in 2-3 different pharmacies and you are earing your income as a T4 employee. You are probably ending to pay taxes at the end of the year. At the same time, you are driving a lot of KM every day to work your shifts.

If you are in this situation, we strongly recommend that, it would be better for you to charge as a relief pharmacist and take advantage of writing off business expense such as: Car, Cell Phone, Travel …..etc. ) and save a lot of taxes every year.

As Professional Accountants in Toronto Downtown we specialize in Pharmacy Accounting and Tax Planning, we provide Free Initial Consultations.

If you have any questions, feel free to contact us at 416.454.8812 or at mina.hanna@accountingontrack.com
We would be more than happy to answer your questions.

Relief Pharmacist:

If you are a Relief Pharmacist, so you are already invoicing and collecting HST

Depending in your level of income and your personal lifestyle we can help you decide on which would be better for your situation; Charge as a sole Proprietorship or a Corporation.

It is very common to be told or you may have heard from someone that for tax purposes you should incorporate your business. This is simply may not be true for each and every situation, in fact, in some cases, the opposite can be true.

The main advantage to incorporating your business is that the business pays a very low corporate tax rate compared to a much higher personal tax rates. Call us today to further discuss tax advantages of Incorporating your business, we are Professional Accountants in Toronto Downtown specializing in Pharmacy Accounting and Tax Planning.

 

Pharmacy Owner:

Whether you own one or more Pharmacies, sole or multiple operators, Identifying the proper legal entity structure helps to save thousands of dollars every year.

A very common mistake, we usually come across so often, where 2 operators owns one pharmacy or more, and of course each one of them has different income needs and lifestyle; but still take the same amount of salary or dividends. This of course is not be the most advantageous to your unique tax situation.

Listing spouses as shareholder’s allows proper income splitting and dividends sprinkling. Needless to emphasis on making sure of taking advantage of claiming allowable business expenses

Planning your taxes is simply taking a proactive approach rather than a reactive one. Tax-planning with one of our accountants in Toronto Downtown, Oakville, Mississauga is very dynamic. As tax accountants in Toronto Downtown, we ensure your tax-plan is concurrent with your financial situation and your personal lifestyle

As Professional Accountants in Toronto Downtown, we specialize in Pharmacy Accounting and Tax Planning.
We work with all types of pharmacists, Staff Pharmacists, Relief Pharmacists, New and Existing Pharmacy owners. We provide Free Initial Consultations.

If you have any questions, feel free to contact us at 416.454.8812 or at mina.hanna@accountingontrack.com
We would be more than happy to answer your questions .

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What is The small business deduction?

CCPCs Canadian-controlled private corporations are entitled to claim a small business deduction on active business income earned in Canada.

As professional Tax Accountants in Toronto downtown, we specialize in dealing with small businesses.

For the past ten years we have helped a lot of clients with their accounting, bookkeeping and corporate tax filing in Toronto. As professional Tax Accountants in Toronto downtown, we are specialized tax accountants for independent contractors servicing clients in Toronto, Mississauga and Oakville

 

What is an active business?

Active business includes a business, as well as an adventure in the nature of trade, it is essentially what it sounds like. Active income is typically anything other than investment income, rental income, leasing income, income from a specified investment business or a personal services business.

 

So Active business Income does not include:

1- A business that derives its income from property (including rent, interest, dividends, or royalties) and has less than six full-time employees (i.e., a “specified investment business”)

2- A business that provides personal services through a corporation, has fewer than six full-time employees and where, were it not for the presence of the corporation, the individuals providing the services would be considered employees or officers of the entity using those services (a “personal services business”).

The small business deduction currently provides a 9 % federal tax rate. The small business rate is available on active business income up to the amount of the Business Limit.  The current federal business limit equals to $500,000

 

Federal rates:

The basic rate of Part I tax is 38% of your taxable income, 28% after federal tax abatement.

After the general tax reduction, the net tax rate is 15%.

For CCPCs Canadian-controlled private corporations claiming the small business deduction, the net tax rate is:

9% effective January 1, 2019
10% effective January 1, 2018
10.5% before 2018

 

Provincial Taxes:

In Ontario, corporations carrying on business through a permanent establishment in Ontario are subject to both federal and Ontario corporate income taxes. The tax rates apply to taxable income allocated to Ontario.

The Ontario General corporate income tax rate is currently 11.5%.

The Ontario small business deduction (SBD) reduces the corporate income tax rate on the first $500,000 of active business income of Canadian controlled private corporations (CCPCs). Effective January 1, 2018, the lower rate of Ontario corporate income tax is 3.5 per cent.

The table below shows the general and small business corporate income tax rates federally and for the province of Ontario.  Rates differ from province to province. The small business rates are the applicable rates after deducting the small business deduction (SBD).

General Rate

Small Business General Rate

Federal

15% 9%

$500,000

Ontario 11.5% 3.5%

$500,000

 

While the federal government announced in 2018 that it is phasing out the $500,000 small business limit for corporations that earn between $50,000 and $150,000 of passive investment income in a taxation year, Ontario is not paralleling this phase out.

Ontario does parallel the federal SBD phase out where a CCPC’s (and associated groups of CCPCs) taxable capital is between $10 million and $15 million. CCPCs (and associated groups of CCPCs) with taxable capital of $15 million or more are no longer eligible for the lower rate of corporate income tax on the first $500,000 of active business income.

As professional Tax Accountants in Toronto downtown, we work with you to optimize your tax position regardless of the size of your business, Whether you are just starting your corporation, thinking of expanding, or already been operating for years, we Give you customized tax plan to help you save taxes.

Our team of experienced accountants downtown Toronto and Mississauga have a wide range of experience working with businesses of all sizes.

What we can do for you:

  • T2 Corporate Tax Return
  • T4 Slip
  • Incorporation
  • Bookkeeping
  • HST Return
  • T5 Slip
  • T3 Family Trust Return
  • Articles of Incorporation
  • Consultations
  • GST 74
  • CRA Correspondance
  • GST 20
  • T1 Personal Tax Return
  • Payroll

If you have any questions regarding your particular situation, feel free to contact as at 416.454.8812 or by email at mina.hanna@accountingontrack.com

We work with our clients to create effective tax planning strategy that is unique to your business and your particular tax situation. As professional Tax Accountants in Toronto downtown, we are specialized tax accountants for independent contractors servicing clients in Toronto, Mississauga and Oakville.

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Tax Accountant

How to Reduce Capital Gains Taxes in Canada

As professional Tax Accountants in Toronto downtown, we work with you to reduce your Capital Gains Tax. If you have any questions in regards to Capital Gains Taxes, feel free to contact as at 416.454.8812 or by email at mina.hanna@accountingontrack.com . As tax accountants specializing in real estate, we work with our clients to create an effective tax planning strategy to use all allotted exemptions and defer capital gains as much as possible.

Capital gains tax is due when you sell an asset or investment for more than what you paid for, with a 50% of the difference being added to your regular income. In Canada, there are a few major exemptions, and rules which may allow you to reduce your tax, depending on lot of factors.

While opening a registered account to shelter investments and using the principal-residence exemption to reduce capital gains tax on residential property are the two most basic tax saving strategies you can use to reduce your capital gains taxes. However, there are more into Capital Gains Taxes you should be aware of.

 

The Fundamentals ABC

You have to declare capital gains when you sell property or investments for more than what you paid for.

For example, if you bought an asset for $100,000 and sold it for $200,000, you have to declare a $100,000 capital gain in the year you sold the asset. The capital gains inclusion rate is 50% , so you would include $50,000 in your total taxable income of this year when you disposed the asset.

The inclusion rate is the same for everyone, but the amount of tax you pay depends on your total income, personal situation and your province of residence.

There are no capital gains triggered on the sale of your principal residence

There are no capital gains triggered on the sale of investments inside a registered plan such as RRSP or a RRIF,”

Capital gains are calculated based on the market value of the asset sold less the cost of acquiring that asset. As professional Tax Accountants in Toronto downtown specializing in real estate, we work with our clients to create an effective tax planning strategy to use all allotted exemptions and defer capital gains
as much as possible. If you have any questions in regards to Capital Gains Taxes, feel free to contact as at 416.454.8812 or by email at mina.hanna@accountingontrack.com .

Timing Your Transaction

Choosing the time of sale for your investment assets can be a powerful tool for tax reduction.

If you’re planning to sell investment assets that have made a profit, consider postponing the sale until after January 1 of the next year. You will incur capital gains tax that year and only have to pay by April 30 of the following year.

If your income fluctuates from year to year, selling during a year when it is lower will save you a lot of taxes.

If you have investment assets that have lost money, selling them in the same year as profitable ones will allow you to apply the loss against the profits and reduce your overall capital gains tax.

 

Charitable Donations – Gifts – Giving Away Assets

If you are making regular charitable donations or want to give money to family members, you can use donations or gifts to reduce your capital gains tax.

For example, if you plan to make a $1,000 donation to a charity, you can donate shares (stocks) which has a value of $1,000 rather than selling the shares (stocks), paying capital gains tax and adding cash to make up the $1,000 donation, making the donation in shares entitles you to the $1,000 charitable receipt for tax purposes, while not triggering capital gains tax.

Gifts to family members trigger capital gains tax, the CRA deems a gift to be a taxable disposition of an asset. Despite this, you could save money by giving an asset that has generated a loss, but that you want to keep in the family.

Gifting the asset produces a capital loss that you can apply to gains from other investments, while your family member reaps the future benefits of it.

 

Lifetime Capital Gains Exemption – LTCGE

One of the very generous aspects of Canadian taxes is the lifetime capital gains exemption.
If you own a business or operate a farm property successfully over an extended period of time, presumably it should have increased in value and you may, at some point, want to sell the business for example to retire. When this is the case, you may be completely exempt from tax, If you sold qualifying property, your gains of up to $800,000

 

What is considered to be active business?

Because businesses have to use at least 90 percent of their assets in an active business operating primarily in Canada to qualify, consider selling the business at a time when it can fulfill these requirements. To qualify for the Lifetime Capital Gains Exemption.

As professional Tax Accountants in Toronto downtown, we work small business owners to make sure they understand and carefully plan for their retirement or exit strategy and take advance of the LTCGE
Lifetime Capital Gains Exemption

If you have any questions in regards to Capital Gains Taxes, feel free to contact as at 416.454.8812 or by email at mina.hanna@accountingontrack.com and one of our professional Tax Accountants in Toronto downtown, will be happy to help you and answer any questions you may have.

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Canada Child Benefits

If you are in receipt of Canada Child Benefits you may be contacted by CRA and requested to support your eligibility or entitlement to these benefits. In general, there are three main topics of review:

1- Marital status

2- Residency

3- Primary caregiver

In most situations the documentation that will be requested is listed below. However, there are circumstances where the requested information will be specific to the individual’s situation and may not be included here.

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T1 Tax Returns – Changes affecting your 2016 T1 Personal Tax Return

The Tax Season is upon us! As your Accountant in Oakville, I have summarized the 2016 Personal Income Tax changes, which may affect our clients’ T1 General (Personal Income Tax Returns) one way or another, depending on your own individual circumstances of course. Feel free to call us at 416.454.8812 or email at mina.hanna@accountingontrack.com if you have any questions.

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PROPER INVOICE INFO

Financial statements are prepared according to agreed upon guidelines. In order to understand these guidelines, it helps to understand the objectives of financial reporting. The objectives of financial reporting, as discussed in the Financial Accounting standards Board (FASB) Statement of Financial Accounting Concepts No. 1, are to provide information that

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