5 Ways to Save Corporate Taxes

Corporate Taxes

There are two ways corporations can legally decrease their income tax amount. One, opt for things that allow you to earn tax credits and two, take advantage of income tax deductions. Research and plan accordingly with your accountant or financial advisor where you need to make payments or expenses. Here are five ways by which you can save on corporate taxes.

Instead of a Salary, Pay Yourself Dividends

Dividends are considered investment income, so you get paid as an owner or shareholder of the corporation. In contrast to a salary, dividends have a lower income tax rate, as they come under the category of corporate tax rates. An added benefit of paying yourself in dividends is that the first $40,000 can be collected tax-free. You also save money by not paying premiums for the Canada Pension Plan (CPP), as dividends are not subjected to it.

Strategize Dividend Sprinkling

Dividend sprinkling is an income-splitting strategy. If your spouse or other adult members of your family are also shareholders of the company like you, you all could receive dividends instead of a salary. You all could receive an equal amount of dividends to lower the overall tax rate of the family, instead of one member taking out the lump sum amount and having to pay a high tax rate.

Receive Shareholder Loan Payments

A shareholder loan is when shareholders provide funds to the corporation. When the shareholder makes payments on behalf of the corporation for certain expenses, then the company owes them money. Loans paid back to the shareholder are tax-free. So as a shareholder of the company, you can pay for some operation expenditures and receive tax-free loan payments. It would be advantageous to hire an accountant to manage these transactions. 

Take an Employee Home Loan

In a corporation, you are an employee of the company. You receive a salary and a T4 at the end of the year. You can use your corporation money to purchase your home and pay the down payment tax-free. You must repay the loan with interest over a period of time to your corporation, which you are indirectly paying to yourself.

Pay Yourself an Automobile Allowance

If you own a car or any other vehicle and have used it for business purposes, then you can pay yourself an automobile allowance, which is entirely tax-free. You can charge, for example, about $0.50 for a kilometre driven for business purposes and collect a cheque at the end of the year without any taxes to be paid.

Need help with your business accounting? Reach out to MPS Partners. We help businesses with accounting, taxes and financial consultations. We ensure to make your finances easy for your business. Contact us today.