How can you pay less taxes in Canada as a business owner?
Knowledge is power when it comes to business taxes. Awareness of the right accounting services, taxation tips, and business practices can save you money in the long run. After serving the industry as chartered professional accountants for decades, we know what can work for startups and SMEs dealing with tax planning issues. Check out our top 3 tips that will help you save more money on taxes in Canada:
Get incorporated
Incorporating your business in Canada can offer you various benefits, such as lower tax rates on eligible dividends and the ability to defer taxes on reinvested profits. Here’s an explanation: Corporations in Canada have to pay a flat tax rate on their profits. However, corporations also distribute a part of their profits as dividends to their shareholders, who receive tax credits. Thus, as an incorporation, distributing dividends lowers the overall tax burden on the profits of the business. Also, if a corporation chooses to reinvest its profits back into the business instead of distributing them as dividends, the reinvested amount will not be taxed. Due to this, corporations can grow their capital base and increase their future profits without attracting tax on their income. Finally, shareholders who are also employees of the corporation can get a reasonable salary. This salary is a tax-deductible expense for the corporation. Besides, the corporation can also offer benefits like health insurance or a company vehicle. In both cases, you are likely to reduce your taxable income rather than provide the same income directly to the owner of a business, which isn’t an incorporation. If you are indecisive about whether or not to get incorporated, check out our blog, Corporation vs. Sole Proprietorship, and make an informed decision.
