Are you fed-up with paying high income taxes?   As Mississauga Accountants, we understand your frustration, and have developed tax planning strategies on “How to Save Taxes in Canada.”

Many of our clients, who are individuals, business owners and investors, just like you, have saved thousands of dollars in taxes with our unique tax planning strategies, discussed below.

How to Save Business Taxes in Canada – by Mississauga Accountants

 

1.  Home office expenses can save business owners lots of tax

If you own a small business and work from home, you can deduct expenses related to your home office, including:

-          Utilities

-          Mortgage Interest

-          Property taxes

-          Repairs and maintenance

-          Rent paid

“Home office expenses are one of the most over looked tax deductions by small business owners”, say Mississauga Accountants

The percentage of the above expenses that can be deducted is equal to:

                Size of home office / Size of home x 100%

For example, if your home office is 100 square feet and your home is 2,000 square feet, then you can deduct 10% of the expenses related to your home office space.

2.  Repay shareholder debt – say Mississauga Accountants

Shareholder debt is the total amount of funds given by a shareholder to his/her corporation, by way of cheque, direct transfer, or by expenses paid by a shareholder on his/her corporation’s behalf.

From a tax planning perspective, shareholder debt is important because it can be paid back tax-free to a shareholder.  Therefore, if you are a shareholder of a company, then you should withdraw money from your company as a repayment of shareholder debt, instead of taking a salary or dividends, both of which are taxable.   

Before undertaking any compensation strategy, such as the repayment of shareholder debt, talk to Mississauga Accountants first.

3.  Pay dividends – Better than salary – Say Mississauga Accountants

 

A dividend is an amount paid to a shareholder by his corporation by way of a cheque or money-transfer, in respect of his shareholdings. 

For example, if you own 100 shares in your company, and your company declares a dividend of $80 per share for the month, then your dividend would amount to $8,000. 

Dividends are subject to a lower rate of income tax than salary and, in fact, the first $40,000 of dividends received are not subject to tax at all.  In the context of a family business, where both husband and wife are the sole shareholders, $80,000 in dividends could be paid from the family business without incurring any personal tax.

“Mississauga Accountants recommended using dividends to pay yourself, because it’s a tax effective compensation strategy.”

The other tax benefit of dividends is that they are not subject to payroll taxes, thereby making dividends more attractive than salary.

4.  Income splitting with spouse and family members to save tax

By paying a salary to a lower income spouse or child, you can save taxes.

For example, let’s assume that your tax rate is 46.4% and your spouse’s marginal tax rate is 21%.  It would make sense to pay your lower-income spouse a salary, and reduce your salary by the same amount.  By doing this, you would realize a net tax benefit of 25.4% (i.e. 46.4% – 21%). 

Furthermore, if your children are not working, they can receive up to $10,320 each in salary without paying any tax.  The salary paid to them is deductible from business income.

You should speak with Mississauga Accountants before undertaking this tax savings strategy.

For additional income splitting strategies, please see Accountant Toronto – Tax Tip on Income Splitting with Spouse

5.  Management companies – an effective way to save taxes

A management company is a corporation that performs administrative, marketing, accounting, and other tasks on behalf of another related corporation or individual. 

Take the example of a high-income earning real estate agent who is in the top income tax bracket and is paying tax at rate of 46.4%.  He decides to open up a management company owned by his spouse.  The management company will perform all marketing, administrative and accounting work for the real estate agent at a rate of $75 per hour, plus a mark-up of 10% on costs incurred.

As a result of this strategy, the real estate agent’s expenses increase and the management company’s income increases.  Since the management company pays tax at a rate of only 16.5%, the real estate agent is saving 30% in taxes.

Management companies can be used in many industries, not just real estate.

Because management companies are very complex to set-up you should consult with a business lawyer and Mississauga Accountants.

About the Author – Mississauga Accountants – Contact Us Now

Madan Chartered Accountant is a group of Mississauga Accountants in Canada that help individuals, businesses and investors with tax and accounting. 

As Mississauga Accountants in Canada, their services include corporate tax returns, personal tax returns, international tax, review engagements, and financial statements

Related Articles:

Tax consultant Mississauga – How to save taxes

How to save taxes for self-employed in Canada

Tags: tax tips

This entry was posted on Monday, September 6th, 2010 at 2:02 pm by superAmin and is filed under Tax Tips 2010. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.