Why the December buying trip saves no tax
Stock purchased before year-end sits on the balance sheet at cost until it sells, so loading up in December leaves the T2 exactly where it was. The instinct comes from watching service businesses prepay expenses; a jeweller's cost of sales is released piece by piece, on sale, not on purchase. The same logic runs in reverse: a strong December of sales cannot be sheltered by a strong December of buying, but it can be sheltered by a careful look at everything already in the case.
Equipment is the exception. A laser welder or a new safe that is acquired and available for use before year-end starts generating CCA. Knowing which December cheques move the tax number and which merely move cash is half of what Tax Planning & Advisory does for this trade.
The reserve on orders you have not delivered
Custom-order and layaway deposits are income when received for tax purposes, but paragraph 20(1)(m) of the Income Tax Act allows a reserve for amounts received for goods to be delivered after year-end. The practical effect: a bench full of paid-for but unfinished engagement rings at year-end does not inflate this year's bill, provided the deposit ledger cleanly shows what was received against which open order. HST runs on a different clock again, since a true deposit is not taxable until it is applied against the price at delivery, or forfeited. Two clocks, one deposit, and both depend on the same clean ledger.
Write the style-dead stock down, item by item
The Income Tax Act lets you value inventory at the lower of cost and fair market value, item by item, and a jeweller has more honest write-downs available than most retailers: mountings from a discontinued line, styles that dated, pieces bought for a trend that passed. The math has one twist a boutique never faces, because gold content puts a melt-value floor under fair market value; the write-down runs to scrap value plus whatever the piece can still fetch, never to zero. What CRA expects behind the entry is evidence: an aged stock listing, the metal weight, and a note on why the piece no longer sells at cost.
Melting or remounting is not a taxable event either. When an aged piece goes to the bench and its stones reappear in a custom order, the old cost simply carries into the new piece. The planning point is to record the conversion when it happens, because a stock number that vanishes without a paper trail looks like shrink, and shrink without support is a deduction CRA can deny.
Paying yourself when the cash is in the trays
Salary or dividends is a cash question before it is a tax question in this business, because retained profit is what restocks the case. Profit kept in the corporation at Ontario's roughly 12.2% combined small-business rate on the first $500,000 leaves close to 88 cents on the dollar to buy inventory; the same dollar drawn and taxed personally buys noticeably less gold. We build a mix: enough salary to create RRSP room and satisfy the bank, dividends when the season delivers, and family paid only for real work so TOSI never becomes an argument. If the corporation starts holding investments beside the trade, watch the grind, since passive investment income over $50,000 begins to erode the small business deduction.
| Lever | What it moves | What must be on file |
|---|---|---|
| Paragraph 20(1)(m) reserve | Defers deposits on undelivered orders | Deposit ledger matched to open custom orders |
| Item-by-item write-down | Cuts closing inventory to fair value | Aged listing, metal weights, melt values |
| Salary and dividend mix | Total family tax and RRSP room | Payroll records and directors' resolutions |
| Equipment timing | CCA starts when available for use | Invoice and in-service date before year-end |
| HST filing frequency | Cash timing across the year | Election filed with CRA before the period starts |
A calendar, not an April scramble
Every lever above is worthless in May. The reserve needs the deposit ledger clean at year-end; the write-down needs the count and the aged listing done before the books close; the pay mix needs deciding while there is still a payroll run left in the year. So we work jewellers through a short pre-year-end review: a count and aged-stock pass, the reserve schedule, the remuneration decision, and an instalment reset after a strong fourth quarter so the January cash call is not a surprise. The plan is coordinated with the corporate filing so nothing agreed in November is forgotten in June, and it is scoped and quoted in writing after a free 15-minute discovery call.
