Tax tips for small businesses from an Oakville accountant.

Below, Allan (tax accountant Oakville) shares the 5 best tax tips for small business owners:

1. Incorporate your small business

Canadian corporate tax rates are the lowest among the G8 nations. In fact, small business corporations in Ontario pay tax at a rate of only 16.5%

On the other hand, an individual in the highest tax bracket pays tax at a rate of 46.4%.

Therefore, by incorporating your small business in Oakville, you could save up to 30% in taxes.

Allan (tax accountant Oakville) has encouraged many of his business clients to incorporate for tax reasons.

To learn more about the benefits of incorporating, please see I’m thinking of incorporating my small business. Should I incorporate and can you help?

2. Make spousal loan, says expert (tax accountant Oakville)

With interest rates at all time low, it makes sense for you to make a spousal loan.

Ordinarily, any investment income or capital gains earned by your spouse from the proceeds of a loan that he/she receive from you, would be attributed to you and included in your taxable income.

However, if you loan funds to your spouse at the Canada Revenue Agency’s prescribed rate of interest, which is currently at an all time low of 1%, then any investment income or capital gains earned on the loan proceeds by your spouse will be included in your spouse’s income.

If you are in a higher tax bracket than your spouse and have extra cash to invest, then it makes sense to make a spousal loan.

For more information on spousal loans, please see Spousal Loans by Tax Accountant Oakville

Before you undertake this tax strategy, you should speak with a local tax accountant.

3. Holding companies

A holding company is a shell corporation that holds the shares of an operating corporation. Holding companies have many purposes. Two of the most popular purposes are:

– To protect cash assets (e.g. bank accounts, short term investments, GIC’s) belonging to your operating corporation in Oakville, from creditors. This is accomplished by transferring the legal ownership of your Oakville operating company’s cash assets to your holding company.

– To allow shareholders in a corporation to better manage their compensation. For example, assume that there are two equal shareholders: Mr. A and Mr. B. They’ve been running a successful operating company in the City of Oakville and have recently hired a professional.

On the advice of their experienced accountant, both Mr. A and Mr. B created holding corporations, each of which owned own 50% of the shares of the operating company.

At the end of each month, the Oakville operating company pays a tax-free dividend to Mr. A’s holding company and Mr. B’s holding company.

If Mr. A personally requires the cash from the dividend, Mr. A could take all or a portion of that money from his holding corporation, and would have to pay personal tax. On the other hand, Mr. B may not require any money from the monthly dividend and could therefore leave the money in his holding corporation, thereby avoiding any personal tax.

As you can see, holding corporations are very useful in satisfying the compensation needs of several shareholders. You can also see that it makes sense to hire an experienced accountant (tax accountant Oakville) from this example.

4. Health & Welfare Trust (HWT)

A HWT is a mechanism to allow your corporation to deduct your personal medical expenses. In the absence of a HWT your personal medical expenses would be non-deductible by your corporation.

Many insurance companies, such as Hub Financial and Benecaid, offer HWT’s.

You should speak to your Tax Accountant Oakville about the benefits of using a HWT.

5. Leasing company vehicle

It makes sense to have your corporation lease a car that you can use for business purposes. This is very advantageous from a tax perspective, because the lease payments are deductible by your corporation and are paid from corporate dollars. However, for company leased cars, a personal use benefit will be included in your income for the amount that use the company leased car for personal use.

Please speak with a professional (tax accountant Oakville) about this tax strategy.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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