If you have corporate or individual clients in the Yukon, you may want to help them figure out if they’re eligible for any territorial tax credits. There are a number of credits that can help them lower their tax liability if they do business or live in this territory.
Political Contributions Tax Credit
As of 2018, this credit is worth up to $650. It’s available to both corporate and individual clients, and you calculate it the same way for both. Its value is:
- 75% of the first $400
- 50% of the following $350
- 33.3% of the next $525
For instance, if your client makes $1,275 in qualifying political contributions, they receive a $300 credit for the first $400. That’s $400 x 0.75. Then, they get an additional $175 for the next $350 of their donation. That’s $350 x 0.50. Finally, they receive $175 for the final $525 of their contribution. Again, that’s $525 x 0.333. This brings their total credit to $650. Even if they donate more than that, their credit doesn’t increase. If you have individual clients who own corporations and want to maximize this credit, you may want to advise them to make some donations personally and some through their corporation.
Research and Development Tax Credit
This credit is also available to both individuals and corporations. To qualify, the corporation must be permanently based in the Yukon, and it must have qualifying research or development expenses. Qualifying expenses must be scientific research or technological analysis. That includes basic or applied research related to creating or improving materials or processes.
Your clients can’t claim this credit for market research, routine product testing, or regular data collection. As this tax credit is designed to promote science and technology, it doesn’t apply to social science or humanities research. To apply, corporations need to complete form SCH 442 and submit it with their tax return. Individuals file form T1232. The credit is worth 15% of eligible expenses, and if the corporation or individual pays Yukon College for the research, the credit is worth 20%.
Manufacturing and Processing Profits Tax Credit
To entice manufacturing and processing corporations to set up shop in the Yukon, the territory also offers a generous tax credit on profits in this industry. Small corporations can claim a credit worth 0.5% of their manufacturing and processing profits earned in the Yukon. As the small business tax rate is only 2%, that lowers their territorial tax rate to just 1.5%. Large corporations can claim a 9.5% credit against their manufacturing and processing profits. As their tax rate is 12%, that brings it down to just 2.5%.
To explain, say you have a large corporate client in the Yukon. They have $1 million in profits, and it was all from processing and manufacturing. On these profits, the 9.5% tax credit is worth $95,000. Based on the 12% tax rate, their territorial income tax is $120,000. When you subtract the credit ($95,000) from the income tax ($120,000), that drops their tax liability to $25,000.
Ideally, you shouldn’t wait until tax season to tell your clients about these credits. If you tell them in advance, they know to save their receipts, and that makes it easier for everyone to prepare for tax time.