Why the client reached out to KAD
Company “A” came to KAD concerned about whether the previous accountant had properly filed the corporate tax returns in the current and previous years. Further, the client wanted to confirm that all allowable deductions had been reported and that the remuneration (salaries vs. Dividends) paid to the shareholder(s) was optimizing personal income tax rates. The client wanted to ensure that the corporate structure would appropriately cope with business expansion and growth, as well as diversification into other industries/business sectors. Lastly, did the financial statements properly reflect operations and the assets and liabilities of Company “A” to the tax authorities and financial institutions? With growth, the financial statements needed to support additional financing.
Action taken by KAD team
- The KAD team reviewed the current and past three years of bookkeeping, financial statements and tax returns of Company “A” as well as the shareholders’ personal tax returns.
- The KAD team reviewed filings and account statuses for the tax authorities; analyzed the financials statements for agreement with tax returns filed and whether “Best Practises” were employed; and discussed with various stakeholders their current and future expectations for Company “A”.
Successes realized by client
- By properly reporting Capital Leases the amended financial statements were more robust and reflected the significant investment that Company “A” had made in fixed assets – building, vehicles and equipment. Further, by reporting all of its financial commitments and borrowing it instilled greater confidence by financial institutions and expanded the borrowing power of Company “A” and its associated group of companies.
- In capitalizing the Capital Leases for financial and tax purposes, the company could take advantage of recent changes to the Canadian Income Tax Act, and report and expense escalated rates of Capital Cost Allowance – thereby significantly reducing taxable net income.
- Changes were made to the corporate structure, that now encompassed other family members, segregated active and passive income streams and made Company “A” group of companies were very much more accepted by banks and other lenders.
- New remuneration strategies (salaries, dividends, income deferral, etc) ensured that Company “A” shareholders properly weighed income allocation against optimal personal income tax rates.
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