There are certain benefits that you may be able to enjoy without having to pay any taxes if you own a small corporation. In the paragraphs below, we will highlight three different kinds of benefits that you can get from your corporation to help ease the burden of paying taxes when you run a business.
Are you thinking of leasing or buying a car which you can use for business? Instead of buying a car and registering it under your name, have the corporation lease the car for you. This will have a huge tax advantage as opposed to buying a personal car and using it for business then claiming a portion of the cost as vehicle business expenses.
The lease payments you make when your corporation leases a car will be written off as a business expense. This is the case even if you end up using the company car sometimes for personal use. You can only be taxed 2/3rds of the lease payments personally. In fact, if you use the car mostly for business purposes and you drive less than 20,000 kilometers per year, the taxable benefit can be reduced significantly. Just make sure when leasing a car, your company name is the one on the lease contract for you to get the tax advantages that apply.
Your corporation can also cover medical expenses such as dental care, eyewear, hospital charges and prescription medication. The Canadian Income Tax Act allows any corporation to claim tax deductions when they pay health insurance premiums for their employees. If you own a corporation, you can also be an employee of that corporation and be covered under the same health insurance plan. However, the insurance plan only covers employees so make sure you are not only there because of being one of the shareholders.
Individual Pension Plans
Your corporation can make contributions to an IPP which will then invest the money into the stock market and bonds in order to grow the investment large enough to provide its members with a fixed pension payment every month when they retire. Most private employees complain that they do not receive generous pensions like government employees but IPPs have been designed to enable this. All the contributions that are made by your corporation to an IPP are subject to tax. However, once the IPP invests those contributions then the investment income is not subject to any corporate or personal taxes. This is a great way to invest money for retirement and reduce on taxes.
You can use your corporation wisely to get tax free advantages from having a company car, medical plan, and individual pension plan. For instance, if you contribute to an IPP and get sufficient investment income, this money is not taxed so you get to enjoy a good pension payment upon your retirement. If you are really looking for ways to take advantage of your corporation and reduce taxes, speak to a tax accountant who will take time to evaluate your unique situation and provide sound advice.