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Tax rules for small businesses
Advisors Inc, Toronto, ON
I turned 65 last April. I plan to work until
I am 67 years old. My annual income is
about $150,000. I am planning to defer
collecting CPP until I am 67, and therefore
I have to continue contributing to CPP. My
wife will turn 60 when I am 66 and she
will start collecting CPP at that time. Is
this a sensible decision?
I’m assuming there were no other beneficiaries of the RESP and/or that you have no
other beneficiaries under the age of 21 that
you could add. The following are possible:
; The portion of original contributions
remaining in the plan can be returned to you
J. W., Gatineau, QC
You can continue working and still
receive your CPP as of age 65. You can voluntarily choose to continue contributing to the
CPP, but if you do, your employer must contribute as well.
; Any remaining portion of the Canada
Education Savings Grants/Quebec supplements will be repaid to the respective government programs.
; Any balance (accumulated income payment, or AIP) can be paid to you or to your
RRSP, if you have sufficient RRSP contribution room to do so.
If you choose to delay taking your CPP
until you are 67, the benefit you receive will
be 8. 4 per cent higher than the maximum.
You can also continue contributing to the
CPP and getting benefits.
The AIP will be taxable income to you.
However, to the extent that some or all of the
AIP is contributed to your RRSP, the income
tax on the AIP will be minimized. To the
extent that the AIP isn’t rolled into your RRSP,
it would be subject to a “special tax” (surtax)
of 20 per cent, over and above the regular tax
on the income.
Canada Revenue Agency’s RESP document RC4092 (E) Rev. 11 is helpful.
Cynthia Kett, Stewart & Kett Financial
Keeping records, filing tax returns and
collecting GST/PST is cumbersome for a
tiny business that is unlikely to achieve
$5,000 in annual sales. What are the legal-ities and obligations?
Your plan to delay taking your CPP until
later has some merit in that if you receive it
earlier you will lose a good portion of it to tax
because your income is so high. You should
consider what your post-retirement income
will be like: Will you be in a lower tax bracket?
If your spouse applies for her CPP at age
60, assuming she turns 60 in 2013, the annual
reduction will be 6. 48 per cent per year. So she
can expect a reduction of 32. 4 per cent of her
CPP benefit. This reduction will grow to 6. 72
per cent in 2014, or a 26.88 per cent reduction
of her benefit.
D.C., Thornhill, ON
You are considered self-employed and
must report your net income. But this means
you can deduct any expenses incurred to earn
the income. Car expenses would be an example. You would have to keep all your car
expenses for the year and calculate the percentage you use the vehicle for business.
The decision of whether to take the CPP
earlier is not as clear-cut as it used to be, but
in this case I would favour taking the benefit
earlier, with a reduction of 32. 4 per cent.
Despite the reduction she will have enjoyed
an extra year’s benefit.
Email to: questions@canadianmoney
saver.ca. Or send to: Canadian
MoneySaver, The Costco Connection Q&A, 55 King St. W., Suite 700,
Kitchener, ON N2G 4W1.
Caroline Nalbantoglu, financial planner
CNal Financial Planning Inc., Montreal, QC
Since your gross income before expenses
is less than $30,000, you do not have to charge
GST or PST. If you ever reach that level you
would have to register and charge the tax. It
appears you may not have a concern in this
area with projected sales.
My son has $7,000 in an RESP under the
“umbrella” of my accounts. How long can
he keep the RESP? Can we transfer the
money to his RRSP or TFSA? Or mine?
Can we claim the losses? What would be
our best option?
Selected questions are answered
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In our experience, CRA does not distinguish based on size of income or profit.
Everything must be reported. Not reporting
income can be considered tax evasion, for
which penalties include up to 50 per cent of
the reported income plus tax, interest, etc.
R.M., Montreal, QC
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The opinions of the experts may not
apply to Quebec residents.
H&R Block Canada, Olds, AB