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Last minute tax saving for corporations

on Sat, 12/19/2015 - 09:07

"Entrepreneurship and Small Business" series, #8 (#7 Business budget made easy; #6 The advantage of a business account; #5 How to pay yourself effectively; #4 How to manage your business; #3 Things to consider when you start your business; #2 What you should do before you quit your full time; #1 What needs to be prepared before you start your business; #9 The federal disaster to small businesses and working class

If you hold a corporation, there are some strategies at the year end you can consider to lower your tax bill:

Return income back to corporation

Over the year, you probably had drawn some money from the corporation as income, now is the only time you can reflect how much you had drawn and decide whether you can put some money back. This will allow you to keep a lower personal income level so that you don't get taxed as much.

Defer your income

Similar to the above, if there is income from the corporation you expect to draw from, consider to do that after the year ends, so that it becomes your 2016 income instead of part of 2015 income.

Pay family members

This is a common income splitting strategy: instead of paying everything to yourself, pay your kids and lower-income spouse, resulting same level of total income within the family but each member has lower tax personal rate. 

Consider taking dividends

The 2015 Federal Budget had changes to the small business tax rate, it will be reduced from the current 11% to 9% gradually over four years startiing from the beginning of 2016. At the same time, personal tax rate on non-eligible dividends will increase. If you still looking to take money out of the company, consider take that in dividends.

Determine your compensation structure

The amount that you have been paying to yourself from the corporation is cash to you. However, there are different tax treatment to you personally if they were considered as form of salary, eligible, non-eligible dividends or shareholder loan repayments. You can reference a post I previously did on "How to pay yourself effectively". 

Claim an ABIL

If you had lost money in an investment in the year of 2015 or invested in an business which gone insolvent or bankrupt this year, you might be able to claim an allowable business investment loss (ABIL) . ABIL is equal to 50% of the loss, it can offset any capital gains, as well it can also be applied against any other type of income. Do understand this is a bit tricky, and that you better of consult your accountant before doing this.

Purchase a car through your corporation

Depending on the nature of your position, you might want to consider purchasing a vehicle that the company can be provided to you. When the car has depreciated in value, you as the business owner then continue to be stung by the taxable stand-by and operating cost benefit annually. This will potentially allow you to avoid the annual taxable benefits and begin to receive a tax-free car allowance from the corporation for business use of your vehicle.

As we stated all the time, everyone has different situation and so as every corporation, feel free to contact us on what to do or how to re-strategize your finances for both your families and businesses. Make sure to talk to your accountant before making any move, there might be things that cannot be undone if done improperly.

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