Canadian Accounting/Tax Questions - might help a lot of

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Hi David
We met last spring when you assisted with my personal taxes.  I was very impressed with the work that you did with my taxes and with my tour of the 1st ISP in Canada!
Part of the first commericl ISP which was wimsey.com - Richard Pitt who was a partner in Wimsey.com is back working out of our office on a part time basis and also available for consultations, etc. for those who want some internet help.
Do you do small business tax returns?  If so what do you charge per year -
Yes, we do small business returns.  Hard to give a price.  If I said from $350.00 to $10,000 per year I would not be out of line.  There are businesses with three or zero transactions in a year.  They can be done for $350 to $500.  Our specialty is a business with one to five shareholders and a cross border aspect.  These can run from $3,000 to $5,000 because of the nature of filing two countries and maybe a state's returns and integrating the Canadian and US figures for foreign tax credit. For instance, if an American is the owner of the shares of a canadian Corporation, just filing the 5471 forms results in an extra $1,000+ of fees. The above are the fees for the tax returns.  Bookeeping rates would add to those fees and are completely dependent on time spent.  We can also handle the bookkeeping at a rate between the downtown office and the do it at home bookkeeper.
However, I do not remember your being an American so that should not be a factor.
I would imagine you would need to do some minor adjusting entries, prepare the unaudited financials and file the tax returns?
Do you have a recommendation for a book-keeping service that does 1-2 hours a week inexpensively?
We can do that!
I don't know if you do this sort of thing but I need about 1 hour of your
time for an opinion on several matters and since you are familiar with my
taxes from last year I think you are the best person to ask.  I have taken
the liberty of posing the questions below in case you can spare the time
also so you know how much time it will take you to answer - however -
before we proceed I would like your estimate of costs for your time.  If
you are not able to assist could you make a recommendation?  Forgive me but
I am trying to keep costs down because I need every penny I have to close
the purchase.
I am glad to provide you with that hour or two.  I am answering this from home however, and my appointment times are not available.  Call (604) 913-9133 tomorrow morning after 8:30 AM and anyone who answers the phone can set up an appointment.  I know that Saturday is free and think we could likely fit in 11 AM on Friday.  Thursday evening is gone but a 10 AM on Thursday is also available as I remember.
Questions:
1) You may recall that I got home from a trip last year in April before
coming to see you.  I have not earned any income in 2003 other than UI
totalling $7455 after deductions this year.  I have now found a small
business that I am purchasing and to do that I will take money from the
Bank Account of the Limited company that I ran a number of years ago in the
amount of $35,000.  The question - does it make sense to:
a) declare a dividend in the amount of $35,000 or some other amount - I am
the only share holder
Maybe.  If it is tax paid retained earnings, it can tax efficient to do that.  
b) take the money as a loan to shareholder with no interest and pay it back
some time in the future
NO, not likely.  The CCRA will impute an interest rate and if not repaid within six months of a year end, you will have to add it to inome as a salary.
  
c) take some or all of the money as wages after I stop my UI but before the
end of the calendar year
Again, could be.  It certainly makes good sense to top up you r EI to at least $30,000 a year for the lowest tax rate.
d) None of the above - you have a better recommendation which is ....
IF C - how much can I take without incurring taxes - please consider that I
would like to make the maximum RRSP contribution for 2004 so if that means
I must pay some taxes so be it?  I have made the maximum contribution for
2003 already.  Starting November 17 I will be paid at a rate of $40,000 per
year for the remainder of 2003.
Your EI has already eaten up the tax free exemption amount. The maximum amount of RRSP contributions for the next couple of years is $14,500 and is always based upon the rearnings for the year before. It is based upon 18% of your earnings plus rentals less EI and other deductions. Therefore, if your earnings were $50,000 for 2003, your RRSP contribution would be approxiamately 18% of $50,000 or $9,000.  YTou would need $75,000 to hit the $14,500 level.
2) With the acquisition of the new company I must mortgage my condo.  I
will use all of the money from the condo mortgage in the purchase price of
the company plus additional money of my own and the money from the company.
 I would like the company to service the debt or pay the mortgage back
including interest over time.  As a non-expert I would think that this is
just another business loan and the interest is tax deductible etc.  But I
want to be sure that it is all above board and beyond reasonable question.
Do I have to have the company borrow against my condo or can I borrow and
loan the company via a shareholder's loan without paying income tax if the
company pays all the fees and interest?
The cleanest method is for you to put a mortgage on in your name. You loan the money to the company and the company pays you and you pay the mortgage yourself.  I am writing this after talking to you and arranging our appointment for Thursday at 10:00 AM and will explain it tomorrow. It involves shareholder's appropriation.
3) With the new company there is an old close to dead vehicle which I will
need to sell and replace.  One possibility for the replacement is to sell
my current vehicle to the company which it would then own and pay to
operate and insure etc.  I would then buy a different vehicle that I own
operate and insure.
If the vehicle is dead and you do not want it, why would you keep it in the comapny name?
4) The new company has it's year end on the last day of the calendar year -
does it make sense to change that to Jan x to allow some latitude in
personal versus corporate income at the end of the year or is it easier to
just leave it the way it is?  Also if it is to be moved can I have the
lawyer just move it or would that entail additional tax filings and cost
beyond what it is worth to do ?
I recommend that you keep the company's year end at Dec 31st.  For the most part, the only advantage to having a different year end is that it gives the accountant's more money for the time needed to adjust the year end for evey single account you have. Most of the world issues information on a calendar year basis.  Anythjing you might save inteh first year with some tax deferral will be repaid over and over again in adjusting fees.
5) I am putting up a significant sum of money to purchase the shares of the
company.  There were 10,000 shares issued but only 1000 were sold - 500
shares to each of the two current owners.  They would like to sell their
shares and use the $500,000 lifetime exemption from taxes.  I would like to
purchase the company in the best safest and best way possible.  
a) Should I personally purchase all the shares outstanding?
b) Loan the company part of the money to purchase some of it's own shares
back and I purchase the other bunch so that I can take back the
shareholders loan tax free when the company has the money?
c) None of the above - you have a better recommendation.
Do not know.  I will likley recommend that you should buy the assets and avoid the shares. Buying th company leaves you liable for any reassessments for tax for instance.  It also leaves you liable for any public liability actions that may arise.  Mauybe, for instance, a dissatisfied customer wants to sue you for a problem that took place nineteen months ago. You should be considering getting a three year old client list and comparing that to the present client list and calling all departed clients to see why they left.
The seller, on the other hand, only wants to sell the shares to get the up to $500,000 tax free.  Just remember that for him or her to get it tax free, you have to give him or her after tax dollars.  so to give him $100,000 for shares, you have to have made some $200,000 and paid 43% tax and 9% CPP to have the $100,000 left over. On the other hand, if you had bought $100,000 worth of assets formthe same person, you would be getting a $43,000 tax refund and the same $100,000 would only be costing you $57,000.
.  
6) Assuming that the company is able to borrow against the condo - that
means that I personally do not have a mortgage but I have property taxes,
heating, internet, telephone and condo fees that I pay.  Does it make sense
for the company to pay me rent for the percent of the area used in my condo
because the business will be operating out of the condo for a short while?
I would guess that I could reasonably claim that 30% of the condo would be
used by the company.
If there is a separate area  set aside for exclusive use of the company, the comapny can pay you rent and you can deduct a proportionate amount of your condo expenses. No separate and exclusive area, no deduction.
7) Last question for the moment - part of the purchase price for the
company is coming from $68,000 that is currently in the bank as working
capital of the company that is being purchased.  The owner wants to apply
that money to the purchase rather than taking it as income.  Can we do that
without incurring taxes?  Example can the company by back from one of the
shareholders an amount of shares equal to $68,000.  And if so, does that
change anything for me other than the number of shares that I would own?
Don't know.  Have to see the company's books.
Thanks David - please let me know if you are unable to assist in this
matter - I would like to know the answers this week and I am available at
all times if you have questions or need additional information.
Will see you tomorrow morning at 10 AM
Regards, AXXXXXXXXXX
604-687-XXXX if you like or email if you like.
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