The Rural Voice, 1983-12, Page 12LIMITED
wish all of
our customers
a happy and safe
Holiday Season.
We look forward
to serving you
in 1984.
•o-
5 Km. south
of Durham
on Hwy. 6
519-369-3203
♦ufWM*ZEO DENIM
"We guarantee your muffler
for as long as you own the car."
• Free Inspection
• Fast, Courteous Service
• Custom Bending
• Competitive Prices
Larry's Cycle World
435 Durham St. E.
Walkerton
519-881-0984
(Directly across from Brewers Retail)
We're the originals.
PG. 10 THE RURAL VOICE, DECE
GUEST COLUMN
Minimizing Income Tax
Diligent planning is required in all
aspects of any farming operation and
planning to minimize income taxes is
no exception. Care should be taken
both at the beginning and end of a
year to ensure that income taxes are
rightfully kept to a minimum.
The vast majority of farm
businesses have December year ends
-and file their statements on the cash
basis. As such, any required
operating expenditures for the for-
thcoming year could be purchased
and paid for before December 31st to
help defer any taxes that might be
payable. However, in order to deter-
mine whether taxes might be payable,
you should take your farm books to
the accountant in November or early
December and ask for an up-to-date
statement. A forecast of known in-
come and expenses for the remainder
of the year would then reveal whether
income taxes are going to be a pro-
blem and to what extent. If so, plann-
ed required expenditures may be
made prior to the year end. It should
be noted, however, that it would be a
very unwise economic move to simply
spend to defer income taxes. Income
taxes are only one of the considera-
tions and should not be the only one.
In addition, one could consider the
purchase of additional equipment
before December 31st in order to
claim extra depreciation for the year.
However, do not forget the new 1/2
rules for depreciation in the first year
as well as the Business Investment
Tax Credits (BITC) that are
available. Certain new fixed asset
purchases qualify for a direct 7%
federal income tax reduction on your
return.
At the beginning of the year, one
could now consider paying spouses
and children a wage. Income splitting
gained much popularity in recent
years when unincorporated
businesses were allowed to pay
spouses. The spouses can be paid up
to the fair market value of services
that they perform for the proprietor.
They should not be paid more than
the same wage that you would have to
pay outside help to perform the same
work. They should also be paid in the
same manner, i.e. weekly, bi-weekly,
etc.
Income splitting with your spouse
MBER 1983
can also be achieved if your Canadian
investment income is in excess of
$1,000 per year. As the first $1,000 is
tax free, interest free demand loans
could be made to the spouse. The
spouse would then reinvest these
monies and another $1,000 of tax free
investment dollars could be earned.
Cautions should be taken in setting
up the loans and both your accoun-
tant and lawyer should be consulted
before proceeding.
Other forms of business organiza-
tion are also available, such as part-
nerships and corporations, to achieve
income splitting with your spouse.
These, however, should be considered
carefully before proceeding and only
if your accountant has listed the pros
and cons of each as it applies to your
particular situation.
Children can also be paid a fair
wage for the services that they per-
form on the farm. This becomes
especially critical when they go off to
college or university for eight months
of the year. Why pay for their tuition
and living expenses with your draw-
ings that are after tax dollars? In-
stead, pay them a wage for the ser-
vices they performed and obtain the
deduction on your statement. They
are the only ones who can deduct tui-
tion fees from their income no matter
who pays for them. In this way, they
can be paid approximately $6,000 a
year before they would have to pay
any tax and you have a legitimate ex-
pense on your farming statement. As
was the case with the spouse, they
cannot be paid more for the services
that they perform than would other-
wise be payable and the manner of
payment should again not be dif-
ferent from other outside help. In
both cases, you must register with
Revenue Canada as an employer if
you have not already done so for
other employees.
Prior to the end of February, you
should consider the purchase of a
Registered Retirement Savings Plan
(RRSP) or a spousal RRSP. Before
purchasing any plan, however, you
should know what your earned in-
come was for the past year. No
amount should be paid in unless you
know that you will be able to use it.
This will mean completing your farm-