Be it business, personal assets, income, or inheritance, tax is a part and parcel of every transaction. While you must pay tax on most transactions, how much you pay is where the tax experts come in. The same transaction done differently can save you thousands of dollars in tax liability. But that needs a thorough understanding of the ever-changing business tax laws. While an accountant can help you prepare your books of accounts and file your tax returns, a tax expert can plan the entire transaction from start to end and help you avoid costly corporate tax mistakes.
Situations When Small Businesses Need a Tax Expert
To understand when you need a tax expert, ask yourself, is the transaction a big-ticket item? The bigger the transaction, the bigger the tax liability. And if the Canada Revenue Agency (CRA) auditors visit you, the tax expert can represent you.
Let’s look at some situations where hiring a tax consultant can bring you significant savings in tax bills.
Tax Planning for Setting Up and Liquidating a Company
- Starting: When starting a new business venture, you might want to know which business structure suits your operations: an incorporation, a partnership, a trust, or any other structure. A tax specialist will understand your business operations and expenses and use his knowledge to suggest a tax-efficient structure that can sometimes give you a competitive advantage over rivals with inefficient tax planning.
- Expanding: As your small business grows, so do the complexities of the transactions. Expanding into different provinces and countries requires tax experts well-versed in international tax laws. Consulting a tax expert before expansion can help you sustain the growth that comes with expansion and avoid any future tax disputes.
- Liquidating: A thorough tax planning is required when you start a business. An even more detailed planning is needed when liquidating your business. Withdrawing or selling your business could bring significant capital gain, and the CRA could take a big bite out of that gain. But a tax expert can use several estate planning options, like long-term capital gain exemption, life insurance, and family trust, to safeguard your capital gain from CRA’s tax claws.
Tax Planning for Compensating Executives
Many other transactions in business need tax specialists. One of them is deciding on shareholder structure and compensating executives. Not all talent comes for a fixed price. Employees who help you lay the foundation and those who contribute significantly towards the business need to be compensated handsomely. One option is giving them a share in the business ownership through employee stock options (ESOPs).
ESOPs are effective but complex and expensive. A tax specialist can guide you in creating such complex structures and making the most of the tax benefits.
Tax Planning for Acquisitions and Inheritance
The more complex the transaction, the higher the need for a specialist well-versed in corporate tax laws. A tax specialist can help you manage the transition when acquiring a competitor or inheriting a family business.
Acquiring or inheriting land or property can bring hundreds of thousands of dollars in capital gain tax liability. Transferring family business or property to children is deemed as asset sale at fair market value. These assets are not liquid, but tax is to be paid in cash, forcing many heirs to sell the property. If only they had taken the help of a tax consultant, the heirs could retain the family property while deferring tax for a time when they have liquid assets, such as proceeds from the sale of property.
The estate owner also needs a tax specialist when building the estate. For instance, you own five stores and three buildings and earn rent. A tax specialist could plan your asset safekeeping by creating a trust or a holding company. The expert can plan on accumulating financing for capital gain tax using long-term capital gain exemption and other exemptions. These exemptions need meticulous planning of transactions, and tax consultants are expert in it.
If you are an executor of a will or a trustee of a family trust, liquidating assets and paying off liability and income tax of the deceased need a tax expert. Another popular element in estate planning is creating a holding company structure or a trust, which needs a tax specialist.
These are not regular transactions. Moreover, tax laws are confusing and complex. It is better to let the experts take charge.
Even after paying regular taxes, you could face a CRA audit or assessment for not paying or underpaying direct and indirect taxes. At such times, the tax expert can represent you and talk law to law, explaining the nature of the income, expenses, and their rightful tax treatment. Tax experts also help resolve any disputes between the company and tax authorities regarding tax filing.
These are just a few scenarios where tax experts do a better job than an accountant. Knowing when to approach a tax expert can save you from a huge tax bill in the future.
Contact KSSP Partners LLP in Markham to Help You with Tax Planning
A professional tax consultant can help you prepare a tax-efficient estate plan, business strategies, and transactions. Even if you are doubtful whether you need a tax expert, you can discuss your transaction and seek advice on the right point of contact. To learn more about how KSSP Partners LLP can provide you with your tax planning, contact us online or by telephone at 289-554-5997.