3 Facts You Should Know about Running a Canadian Family Business
Canadian Family Business Facts
It can be difficult to run a business on your own in Canada let alone with your family. Like any business, running a family business in Canada has its rewards and challenges. But a lot of Canadians make it work. In fact, 80% of all Canadian businesses are family-owned and contribute 60% of Canada’s annual gross domestic product (GDP).
While most family-run businesses in Canada have fewer than 100 employees, a large number of Canada’s biggest businesses are family-owned, including Canadian Tire, Husky Energy, McCain Foods Limited, Molson Coors, and Bombardier. (In fact, FBC is family-owned.)
Big or small, there are many benefits to running a family business in Canada. Here are 3 family business tax facts that could save your family-owned business money when you file your annual tax returns.
- Income Splitting
Splitting business income with family members is a great way to reduce your family business tax. Income splitting shifts income from one family member paying a higher rate of tax to another taxpayer within the family paying tax at a lower rate.
If you hire a spouse, partner, or child, the company can deduct the amount it pays them as an expense. Moreover, the family members pay tax at their own personal income tax rates, which are often substantially lower than the family member in the higher tax bracket.
If you can’t hire a family member to work for the family business, you can make them shareholders and pay them dividends, which are taxed at a reduced rate.
The business still needs to pay taxes on this money, but depending on the incomes of the family members and the provinces in which they live, there may be overall tax benefits.
- Considering Incorporation
Incorporating a Canadian family business can also result in significant tax advantages. If the business has grown in size and profitability, it might make sense to operate the business through a corporation.
Small Canadian family businesses are entitled to a low rate of tax on the first $500,000 of active business income—about 15%—but this number will vary by province (ranges from lowest of 10.5% in Manitoba to highest of 18.5% in Quebec).
Incorporating the family business can make a lot of sense if it allows you to leave some of the earnings in the corporation without paying it all out as salary or dividends.
FBC, Helping Canadian Family Businesses Prepare and Reduce Their Taxes
Running a family business is like any business, but there are additional tax breaks that can help reduce the family business’s overall tax burden. The tax experts at FBC can help your Canadian family business find all the tax deductions it qualifies for.
Since 1952, FBC has been working exclusively with small, family-run businesses and agribusiness in Canada. Over the last 65 years, our understanding of Canada’s ever-changing tax law has helped Canadian businesses minimize their tax burden and maximize their assets.
Why is FBC the first choice for Canadian small business and agribusiness owners?
Because we understand your unique needs: FBC is the only firm in Canada to offer an integrated tax service on a year-round Membership basis. For a fixed fee, Members get access to our tax planning, tax preparation, consultation, bookkeeping, and financial planning services.
FBC provides all new Members with a review of their previous 3 years’ tax returns.
For more information about FBC and the services we offer, call us today at 1-800-265-1002, or submit an online form and an FBC tax specialist will contact you at your earliest convenience.