Do you own a small corporation in Canada? Did you know that you could receive tax-free benefits from your corporation? In this video, I will highlight 3 types of tax benefits that you can get – A company car, medical expenses, and pension.
#1 – Company Car
Thinking of leasing a new car? If yes, have your corporation lease a car for you. A corporation can write-off lease payments as a business expense. This is still true even if you use your company’s leased car for personal use. The best part is, only 2/3rds of the lease payments paid by your corporation are taxable to you personally. This taxable benefit can be reduced drastically if you use your car more than 50% for business purposes and if your total personal driving is less than 20,0000 kilometers per year. Remember, your company’s name must be on the lease contract for these tax rules to apply.
#2 – Medical Expenses
Prescription drugs, fees paid to a dentist, eyewear, hospital charges, and more can be covered by your corporation and these benefits will not be personally taxable to you. Plus, your corporation can get a tax-write off too. The reason for this favourable tax credit is that the Canadian Income Tax Act allows corporations to claim a tax deduction for Health Insurance Premiums paid for its employees. Corporate owners like you, can also be employees of their corporations and covered under the company’s Health Insurance Plan. There’s one catch – You must have become a member of the company’s Health Insurance Plan by virtue of your employment and not because you’re a shareholder.
#3 – Individual Pension Plan
Many business owners privately complain that they don’t receive a generous pension like government employees do. But what if your corporation could help you secure your retirement and get tax-write off’s too? This is where an Individual Pension Plan, or IPP, comes into play. An IPP is a defined benefit pension plan and is managed usually by an investment advisory firm or insurance company. Contributions made by your corporation to an IPP are tax deductible. Like government pension plans, an IPP invests those contributions into the stock market and bonds so that overtime these investments grow large enough to provide you with a fixed monthly pension payment upon your retirement. Note that investment income generated within an IPP is not subject to corporate or personal taxes.
So here’s the tip:
Use your corporation wisely to get tax free benefits from a company leased car, medical expenses, and a company pension.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.