Canadian-owned corporations are common business structures in British Columbia and Canada as a whole. They come with a host of different structuring options and different methods of compensation (i.e. dividends vs. salaries).
The following are a few simple business and tax tips for Canadian-owned corporations:
- Make your spouse a shareholder of the company as well. This will allow income splitting, flexibility in tax planning, and will help multiply future capital gains deductions.
- Consider paying yourself a dividend instead of a salary. CPP premiums are expensive. Save the CPP premium and put it into the TFSA instead where you have complete control of the funds. For the 2010 tax year, $41,000 of dividends incurred just over $700 in personal taxes.
- Make sure the company pays the maximum allowable mileage allowance for business use of your car. The auto allowance is tax free to the recipient while the company gets to write off the mileage expense.
- If the business operates out of your home, make sure the business claims the home office expense deduction. This amount can be claimed whether you rent or own the house. However, if you own the home, the principal portion of your mortgage is not deductible. Again, the reimbursement for the use of home for business is tax free to the recipient.
- If the company is going to provide a car for use in the business, remember that there are maximum limits on deductible amounts. $30,000 plus HST is the maximum capital cost the company can amortize for cars purchased. For cars leased, $800 plus HST per month is the limit. If the company decides to provide a luxury car to the employee despite these limits, there are rules to tax the employee for the benefits of the luxury car.
- Have the company provide a generous private medical plan or set up a health trust because it is tax deductible to the business and non-taxable to the employee.
- Pay tax installments, tax balances, payroll remittances, HST and file returns on time. Interest and late filing penalties incurred to CRA are not tax deductible. Also, the rates charged by CRA, especially for a late filing, are very expensive compared to a line of credit from the bank.
- And finally (and obviously), invest retained earnings wisely!
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