Most small business owners think about tax in April or when their accountant calls. The business owners who consistently pay less tax are the ones who think about it in June — when there is still time to do something about the current year’s position. Here is a mid-year checklist designed specifically for Alberta small businesses.
Review Your Year-to-Date Income and Projected Year-End
By mid-year you have approximately six months of actual financial data and six months to work with. Reviewing your year-to-date income statement against last year’s results and your projections gives you a realistic picture of where you will land at year-end. Are you tracking higher or lower than anticipated? Has the mix of income changed — more or less active business income versus investment income? This review is the foundation of every planning decision that follows.
Check Your Instalment Payments
If your corporation is required to make monthly or quarterly instalment payments, confirm that the payments you have made are on track with your projected tax owing. If your income is tracking significantly higher than prior years, your instalment amounts — which are typically based on prior year tax — may be insufficient. Underpaying instalments results in instalment interest charges even when the full balance is paid at year-end.
Source: Canada Revenue Agency. Corporation instalment payments. canada.ca
Evaluate Salary and Dividend Mix for the Current Year
If you are incorporated, June is an appropriate time to review what you have paid yourself year-to-date and whether it remains aligned with your optimal compensation structure. The salary-dividend decision affects both your personal tax and your corporation’s tax, and adjusting the mix before year-end is far easier than making corrections after the fact.
Review Major Purchases and Capital Expenditures
If you are planning significant capital purchases — equipment, vehicles, computers, leasehold improvements — the timing of those purchases relative to your fiscal year-end affects when you can start claiming Capital Cost Allowance. The half-year rule generally limits your CCA claim to half the normal rate in the year of acquisition. Understanding how a planned purchase affects your current year’s tax position allows you to time it strategically.
Source: Canada Revenue Agency. Capital cost allowance. canada.ca
Review Your Business Structure
Has anything changed in your business this year that makes you reconsider your structure? Common triggers include significant growth in revenue or profitability, adding a business partner, bringing family members into the business, considering acquiring another business or real estate, or planning eventual sale of the business. Structural decisions have lead time requirements and often need to be in place before specific transactions occur.
Reconcile GST
If your business files GST quarterly, June 30 marks the end of Q2. Ensure your Q2 GST return reflects accurate collected and paid amounts. If you have been less disciplined about tracking GST on business purchases, mid-year is a good time to reconcile your records rather than discovering discrepancies in December.
Assess Whether Retained Earnings Should Be Distributed
If your corporation has significant retained earnings sitting in it, mid-year is a good time to review whether any of that income should be distributed to shareholders before year-end — as a salary, dividend, or other distribution — and what the tax implications of doing so would be. Retaining earnings in a CCPC has its own advantages, but excessive passive investment income can affect the small business deduction in subsequent years if it exceeds the $50,000 threshold.
Source: Canada Revenue Agency. Passive income — impact on small business deduction. canada.ca
Book Your Year-End Planning Meeting
If you work with a CPA, June is the right time to book a year-end planning meeting for October or November — when the full year’s picture is clear enough to make meaningful decisions but early enough to act on them before December 31. Year-end planning conversations held in January, after the fiscal year has closed, offer almost no actionable options.
Key Takeaway: The most effective tax planning happens during the year, not after it closes. Mid-year reviews catch problems while there is still time to address them and identify opportunities before they expire.
Contact Nguyen Scott LLP for a mid-year planning consultation. We serve Edmonton, St. Albert, Leduc, and Drayton Valley. Reach us at nsllp.ca/contact-us/ or 780-458-5479.