Private Companies/ Shareholders

Loans to shareholders

When an individual has received a loan from a company where he or she is a shareholder, or a related person is a shareholder, there may be consequences if the loan is not repaid within one year of the end of the corporation's fiscal year in which the loan was made. If the loan is not repaid within the prescribed period, it will be included in income in the year in which it was granted.

To avoid this inclusion, consider repaying the loan at the end of the year, or discuss with your advisor the choices to be made to avoid tax consequences.

Efficiently structuring executive shareholder remuneration

If you're the owner-manager of a Canadian-controlled private company, it can be advantageous to structure your compensation properly, combining salaries, bonuses and dividends. Optimal planning takes into account not only the individual and corporate tax rates, but a variety of other factors that will also influence this analysis.

Paying a bonus can be a wise choice, since it can be cashed out after the company's fiscal year-end and, in some cases, defer taxation for the individual. This bonus is deductible from the company's income and can help reduce the company's income to the amount eligible for the Small Business Deduction (SBD). In addition, the bonus, like the salary, can be used to contribute to your RRSP.

It's also important to consider the salary-dividend split, taking into account corporate and personal tax rules. Company can accumulate a General Rate Income Account to pay dividends at a lower rate. Capital gains are also a particularly advantageous type of income, with a lower tax rate than dividends.

When planning the compensation of an executive shareholder, you need to consider aspects such as payroll taxes, RRSP and CPP contributions, as well as access to certain tax deductions. Because there are so many factors to consider, personalized planning is essential. We recommend that you consult your tax advisor to optimize this compensation structure.

Wages paid to spouse and children

If you operate a business or are a shareholder in a corporation, you can pay a reasonable salary to your spouse or children, based on services rendered and responsibilities assumed, in order to split taxes without being subject to the split-income tax rule.

Income splitting

In certain situations, it is still possible to split income by paying dividends to family members who are shareholders in your company. However, you need to be very careful to ensure that the income splitting tax rules do not apply; otherwise the split income will be taxed at the highest marginal rate.

For individuals aged 18 or over, dividends can still be paid if they have been actively involved in the business on a regular or continuous basis (an average of 20 hours per week or more) over the previous year or five years. Dividends may also be paid if the amount paid represents a reasonable return on their contributions to the company.

Individuals aged 25 or over can still receive dividends if they hold at least 10% of the company's votes and value. The company must not be a professional corporation or one that derives 90% of its income from the provision of services.

Please note that the taxation of eligible dividends has been modified as a result of changes to the alternative minimum tax rules. Given the complexity of income splitting and alternative minimum tax rules, we recommend that you discuss your optimal compensation strategy with your advisors.

Non monetary gifts and rewards

At Christmas time, many employers pay out taxable bonuses to their employees when they could instead give them a tax-free gift. An employer may give one or more gifts and/or awards per year to an employee for special occasions, such as Christmas, a wedding or an anniversary.

At the federal level, if the total value of gifts and awards exceeds $500 (taxes included) in the year, only the excess of $500 is considered a taxable benefit for the employee. In Québec, the $500 limit applies separately to gifts and awards, allowing a total exemption of $1,000 per year for each employee. The employer may deduct the full cost of gifts, even if they are not taxable.

Navigating through the many tax guidelines concerning gifts and awards can be complex. Don't hesitate to contact us to check that your employees won't receive a taxable benefit.

Explore cleantech investment tax credits

The government has introduced several investment tax credits to encourage companies to adopt green technologies, such as:

• Clean Technology Investment Tax Credit
• Clean Technology Manufacturing Investment Tax Credit
• Carbon Capture, Utilization and Storage Investment Tax Credit
• Clean Hydrogen Investment Tax Credit
• Clean Electricity Investment Tax Credit

These tax incentives offer significant advantages to businesses that invest in sustainable energy solutions. They also benefit manufacturing companies and other sectors that are taking significant steps to reduce their environmental footprint.

Contact us to find out how your company can benefit from these investment tax credits.

Research & Development

At the federal level, a Canadian-controlled private company can obtain a refundable investment tax credit, at an increased rate of 35% on the first $3,000,000 of eligible expenditures. This limit may be reduced depending on the income and taxable capital of the company and associated companies of the group. It is therefore important to keep taxable income and capital below the limits to optimize the tax credit.

Moreover, given that the R&D credit is based on salaries, the payment of bonuses to certain employees performing eligible activities can optimize the R&D credit on salaries.

Tax credit for investment and innovation (C3I)

The C3i is a refundable tax credit available in Québec to companies in all sectors, for their acquisitions of goods such as manufacturing and processing equipment, computer hardware and certain management software packages. Depending on the region, rates ranging from 15% to 25% apply to expenditures made for the purchase of eligible goods between January 1, 2024, and December 31, 2029.

If you're planning to spend money on this type of property in the future, remember to plan your investments to take advantage of C3i's subsidized rates.

Accelerated capital cost allowance for rental apartment building projects

Eligible new residential buildings built in Canada specifically for rental purposes qualify, on a temporary basis, for an enhanced CCA rate of 10%. This measure applies to buildings for which construction begins after April 15, 2024, and before 2031, provided they are ready for service before 2036.

This is an advantageous measure for new constructions. As it's temporary, it's essential to plan ahead so you can make the most of it.

Accelerated deduction for certain categories

Despite the gradual reduction in the former accelerated CCA measures, it is once again possible for the cost of the following depreciable assets to be fully deductible in the first year, provided they are acquired after April 15, 2024, and ready to be put into service before 2027:

• Category 44: Patents or rights to use patented information whether time-limited or not - Rate: 25%.
• Category 46: Data network infrastructure equipment and associated systems software - Rate: 30%.
• Category 50: Universal electronic data processing equipment and system software - Rate: 55%.

Given this possibility, it makes sense for companies to plan their investments in the categories concerned, in order to maximize the tax benefits offered by these measures.