- Incorporation: One option is to incorporate the business to take advantage of lower corporate tax rates, tax deferral, and limited liability protection. However, this may not be suitable for all types of businesses, and it may also involve additional costs and administrative requirements.
- Splitting income: If the business owner has family members who are in a lower tax bracket, it may be possible to split income by paying them salaries or dividends. This can help to reduce the overall tax burden of the business and shift income to lower-income earners.
- Pension plan: Contributing to a pension plan can provide tax benefits for both the business owner and the business. Business owners can deduct contributions as a business expense, while also reducing their taxable income. Meanwhile, employees can benefit from tax-deferred growth on their contributions and potential employer contributions.
- Tax deductions: It's important to take advantage of all available tax deductions and credits, such as business expenses, capital cost allowance, and research and development tax credits. Keeping accurate records and seeking professional tax advice can help to ensure that all eligible deductions are claimed.
- Timing of income and expenses: Business owners may be able to defer income or accelerate expenses to reduce their tax liability in a given year. For example, they may be able to delay invoicing until the following year, or prepay expenses to claim the deduction in the current year.
These are just a few examples of tax-effective strategies for structuring business income. It's important to seek professional advice from a tax expert to ensure that the chosen strategy is appropriate for the specific circumstances of the business and complies with applicable tax laws and regulations.