In today’s world, there is so much information available through the click of a button. YouTube and Google are providing information so fast and accurate that people are becoming brave and trading off the time to learn a new skill, for the cost of a professional. The thirst for knowledge and understanding the reason why tasks are performed a certain way is admirable. However, moving too far outside of your comfort zone can have adverse consequences, and it may result in much more time and money spent than the original cost of the project.
Accountant
Many people have a good understanding of debits and credits and understand how to keep their books organized. Furthermore, people have a general idea of how the Canadian tax system works and feel comfortable having their taxes filed through a discount filing service, or using a computer program to input the information from their tax slips to generate a personal tax return. If an accountant is going to arrive at the same results, why should you pay a premium for their service?
An accountant will assure that the current year filing is done correctly. Although they may end up with the same calculations as you and the same result, an accountant is trained to look for planning opportunities in the future and not only focus on the present. When most people think of the future of their business, or lives they are thinking or generating higher profits, or having more savings, but an accountant is thinking of how to get more money into your pockets for the lowest cost.
Let’s say you’re in the later stages of your life, have a family cottage that you’re not using anymore and decide to sell it. You may have received advice that big additions and changes to the cottage over the years can be added to the adjusted cost base, and lower the capital gain when the cottage sells. This is great news, now instead of paying taxes on $150,000 in additional income, you only need to pay tax on $100,000 thanks to the advice. An accountant would look at this situation and think about future factors, is there going to be an OAS clawback due to the higher amount of income, do they have RRSP room they can use to defer the taxes for a few more years, can they receive the payments over multiple years and use the capital gains reserve smoothing their taxable income. Now not only did you save $50,000 on taxable income, but you may have saved $20,000 more due to government supplements, and navigating the tax brackets.
Lawyers
Many business owners have the impression that lawyers can help with the incorporation process, and after that, they are only necessary if something goes wrong. This isn’t true. Lawyers, like accountants, are specialized in their field and they are able to turn our ideas and thoughts into realities. After speaking with your accountant you may have a plan in the works that is going to save you a lot of money, however, you need to assure those thoughts are worded correctly, so there are no unforeseen consequences once the transaction is complete.
Maybe your corporation has hit a home run this year, and you finally have the money to put the pool in the backyard. The problem is you’ve already taken a high salary and any additional income is subject to a 54% tax rate, you’re only going to get 46% of your own money, yikes. As you’re looking for another way, you read that you can income split with your lower income earning spouse and adult children in university through a family trust. A lawyer will be able to restructure the shareholdings of the corporation, and declare beneficiaries of the trust, and assure no immediate severe tax consequences, all while getting the money out of the corporation this year so the funds are available to cover the costs of the backyard renovation.
In conclusion…
Gaining knowledge from reading and researching is a great starting place for cost-saving ideas, however, advice is often tailored to the individual’s situation asking the question, and legal and tax advice is seldom a one-size-fits-all situation. If you ever find yourself in a situation where you think tax savings can be achieved, we suggest discussing the idea with your accountant or lawyer. They may be able to help the execution or provide an even better alternative.
Speaking to a professional will ensure you are planning ahead before taking any step which could be costly to fix. A professional will avoid such mishaps and also help you stay compliant in all aspects.