TIPS & TRICKS
Reduce your tax rate and defer taxes by incorporating
Generally speaking, an Ontario based corporation pays corporate income tax at a combined (Federal + Ontario) tax rate of16.5%. Contrast that to an individual, who at the highest income tax bracket, pays tax in Ontario at a rate of 46.4%.
Therefore, by incorporating, you as an individual can reduce your tax rate from 46.4% to only 16.5%.
Tax Deferral
You may pay less in tax, if you retain the cash inside the corporation, because of the corporation’s low tax rate. In other words, to the extent that you do not need the company cash for personal needs, it may be more tax efficient to keep those funds inside the corporation, rather than drawing all of the company funds personally and paying personal tax on those drawings.
Receive up $37,700 in Dividends Tax Free
You may be eligible to receive up to $37,700 in dividends tax-free from your corporation! Please ask how you can begin taking advantage of this tax free money today!
Receive a tax free automobile allowance
If you own your car personally and are incorporated, consider having your corporation pay you a tax-free vehicle allowance to reimburse you for the costs that you incurred to operate your vehicle. The allowance is deductible by your corporation. Furthermore, the allowance should be paid at the rate of 52 cents for the first 5,000KM driven and 46 cents per KM thereafter.
Income-splitting strategies
You can save a substantial amount of tax by utilizing strategies to split income among family members. Such strategies include:
- Payment of dividends on separate classes of shares
- Employee profit sharing plans
- Payment of reasonable salaries for work performed
- Payment of income through Family Trusts
If you are in a higher tax bracket than one ore more of your family members, the above income splitting strategies may be suitable for you.
Obtain an employee home loan
You may be able to obtain a loan from your corporation, tax-free, to purchase a home. The loan must be repaid to your corporation over a period of time, and has to comply with certain requirements stipulated by the Income Tax Act, in order to qualify as tax-free.