How can I get tax free benefits from my corporation?

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 favorable 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 as 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 over time 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.

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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