Section 160 Assesments, What Are They and How Can You Fight Back?

As a small business owner, you have likely heard “put it in your spouse’s name, and you can protect it from CRA”. Well, as usual, advice from your neighbour is not always accurate.

Under Section 160 of the Income Tax Act, the Minister (CRA) can attach liability to another individual that has received a transfer of property when the person transferring the property has an outstanding tax liability.

Note: Section 160 of the Income Tax Act is virtually identical to Section 323 of the Excise Tax Act so the same rules apply to GST/HST liabilities.

So, to make this a little clearer, Jane and Bob are married. Jane owes the CRA $50,000 in taxes and the CRA is getting aggressive. To ‘save the house’, Jane transfers her interest in the home to Bob. Bob now exclusively owns the home.

Using the provisions of Section 160, CRA can assess Bob for the taxes that Jane owes because the transfer was merely a means of avoiding the tax liability.

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Salary vs. Dividends, What is Best for You?

Before we can explore the benefits of receiving Salary or Dividends, it is important to first understand what exactly dividends are;

Generally speaking, Dividends are amounts paid to the Shareholders (owners) of a Corporation from the Retained Earnings of that Corporation.

Retained Earnings are simply the accumulated Profits a Corporation has earned over a period of time; therefore, a Corporation can only pay Dividends to the Shareholders if there are Retained Earnings (Profits less Income Taxes).

You may have heard that Dividends you receive are ‘tax-free’, but such is not the case. Dividends for the most part receive specialized treatment by CRA because the Corporation has already paid tax on the Profits it has earned and the Dividends are then being paid from After-Tax dollars. And, depending on your personal tax situation, tax bracket and other factors, a significant amount of dividends could be received before you notice an increase in your personal tax burden, making them seem to be ‘tax-free’.

When you receive Dividends, you also receive an amount called a ‘Dividend Tax Credit’ on your information slip (T3 or T5). This Credit is to recognize that the Corporation has already paid some tax on these amounts.

To make things a little more confusing though, there are 2 types of Dividends you could receive, “Eligible” and “In-Eligible”; simply put, Eligible Dividends receive a higher tax credit for recipients because the Corporation paying the Dividends has paid income tax on these amounts at the highest tax rate already. In-Eligible Dividends therefore, receive a lower tax credit.

Most small business owners will only ever receive the ‘in-eligible’ type of dividends.

So, if Dividends could be relatively tax-free, why would you want to receive a salary instead of dividends?

Continue reading “Salary vs. Dividends, What is Best for You?”


The Firm of the Future

Firstly, let us ask you a question “Are you a ‘typical’ small business owner?

In our daily interactions with small business owners, we see a great deal of common themes, the most being on how small business owners approach the accounting and tax reporting requirements of running their business.

Does the following represent your current accounting systems?

  • You have a ‘bookkeeper’, sometimes your spouse or a friend of the family that helps you with the day-to-day transactions.
  • You have a payroll service provider such as ADP or Ceridian to assist you with paying your employees and ensuring CRA gets their payroll taxes.
  • At the end of the year, all of your records and your accounting system backup (if you are using software) go into a big box and it is all dropped off at your ‘Accountants’ office
  • Then, after waiting patiently, you get your financial statements and tax returns several months later. (and a big bill!)

So, let us ask you another question, “Do you take your car to 4 different mechanics to get your tires changed?”

Surely you answered ‘No’ to this question as it seems to be very silly. However, why then are you using 3 different service providers to get your bookkeeping, payroll and tax filings done?

Times change.  And perhaps it is time for small business owners to change the way they do things, embrace technology and move their accounting into the 21st century.

Think about it, times do change, just a few years ago ‘Interac’ payments didn’t exist.  Now, virtually every business will accept debit payments and email money transfers. Could you imagine not being able to pay for basic needs such as gas, groceries etc. without Interac?

Accounting also changes;  not too long ago, we did not have computer programs like QuickBooks to assist us, your books were exactly that, books!

Humans in general are creatures of habit and are very reluctant to change, after all, if it isn’t broken, why fix it?

So, let us give you a few of reasons:

  • Changing the way you do things can likely provide you with better financial information
  • Changing the way you do things can likely give you more timely financial information
  • Changing the way you do things can likely save you a great deal of money
  • Changing the way you do things can likely improve your cash flow

So, what change do you need to make?

You need to deal with a “Firm of the Future”

What is a Firm of the Future?

A Firm of the Future:

  • Adapts to change, and by adapting to change, improves the efficiencies of their business
  • Embraces Technology, and by embracing technology improves the efficiencies of their business
  • Provides valuable, accurate, timely financial information to their clients, allowing their clients to make informed decisions relating to the financial matters of their business
  • Passes their efficiencies on to their clients by way of lower fees
  • Provides flat-fee, all-inclusive, predictable and affordable services to their clients, no more accounting fee ‘surprises’ at year-end
  • Has partnerships and strategic alliances that can assist you and your business with a multitude of issues such as tax liabilities with CRA, financing, debt resolution and more.

Are you dealing with a Firm of the Future?

Ledgers is the Firm of the Future, contact your local Ledgers Professional and see how we can make technology work for your business.

Would you like to read about an actual client that we recently assisted?  We saved them more than $7,500 PER YEAR!

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