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BMO Financial Group
BMO Bank of Montreal

BMO Bank of Montreal

December 06, 2010 10:20 ET

BMO Encourages Franchisees to Take Advantage of 5 Year-End Tax Tips

- Over 78,000 franchises across Canada employ more than 1 million people

- Franchising accounts for 10 per cent of Canada's GDP

- Franchised businesses account for 40 per cent of all retail sales

TORONTO, ONTARIO--(Marketwire - Dec. 6, 2010) - BMO Bank of Montreal encourages entrepreneurs running franchise outlets in Canada to be proactive and make use of five simple year-end tax tips and strategies that can pay dividends come tax time.

"Before the holiday rush, now is the time to do a quick financial check-up with a banking advisor and your accountant to consider some straightforward tips and strategies to help minimize the amount of 2010 income tax payable," said Cathy Pin, Vice President, Commercial Banking, BMO Bank of Montreal.

For franchisees in Canada (particularly those that are a sole proprietorship or partnership), there are a number of year-end strategies that can be applied to reduce the amount of income tax payable, including:

1)   Do a 'Financial Check-Up': A business banking advisor, accountant, and investment advisor can help owners make sure they have a clear understanding of their current financial situation. These professionals can also help develop or adjust existing plans based on new needs or changing circumstances.  
     
2)   Defer Income: Depending on a number of factors (e.g. future tax rates, projected profit or loss for 2010, cash flow), franchisees may be able to reduce the current taxes they will be paying by deferring some of the income they expect to receive in December, instead into January 2011. 
     
3)   Gather Business Receipts and Increase Expenses: Maximize income tax deductions by ensuring all allowable receipts for business-related expenses (e.g. gas, stamps, customer lunches, coffee for the office) are kept and accounted for. Over the course of a year, those receipts for the little things can add up. Franchisees should consult the guidelines available from the Canada Revenue Agency, or speak to their professional tax advisor about eligible business expenses.
     
    If it makes sense for their current business situation, businesses can also increase some expenditures now on things they anticipate needing early in 2011, in order to maximize 2010 deductions. For example, franchisees can consider accelerating the purchase of new equipment or other depreciable assets before the end of the year to potentially benefit from a claim for tax depreciation in the current year.
     
4)   Consider Inventory Write-offs: A drop in the value of inventory may also provide an opportunity for an additional income tax deduction for the current year. It is important to speak to a banking advisor and your accountant about the tax rules that apply to your particular situation.
     
5)   Set-up a New RRSP or make the Maximum Annual RRSP Contribution: For unincorporated franchisees, income earned by the business becomes personal income when filing taxes using the T1 form. However, many franchisees fail to take full advantage of the best income tax deduction available to Canadians – the Registered Retirement Savings Plan (RRSP).
     
    RRSP contributions are deducted from annual income, thereby lowering income tax payable at the individual's marginal tax rate. Now is a great time to set-up a new RRSP or make a contribution to an existing plan for 2010 to benefit from the tax-deferred growth right away. The process is simple, quick and can be done at any bank branch.

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