Maximizing Tax-Free Benefits Through Your Corporation

If you’re the owner of a small corporation in Canada, you might be unaware of the potential tax-free benefits you can avail from your corporation. This article sheds light on three primary tax benefits you can leverage: a corporate vehicle, medical reimbursements, and pension plans. 

1. Corporate Vehicle Benefit: Considering leasing a vehicle? It might be a good idea to let your corporation handle it. When your corporation leases a car, it can claim the lease payments as a legitimate business expense. Interestingly, even if the car is used for personal reasons, only two-thirds of the lease payments made by the corporation are considered taxable for you. If the car is predominantly used for business (more than 50%) and your personal driving doesn’t exceed 20,000 kilometers annually, the taxable benefit can be significantly reduced. However, ensure the lease contract is under your company’s name to be eligible for these tax advantages.
2. Medical Reimbursements: Various medical expenses, such as prescription medications, dental fees, eyewear, and hospital charges, can be borne by your corporation without them being taxable to you. Additionally, this allows your corporation to claim a tax deduction. This is possible because the Canadian Income Tax Act permits corporations to deduct Health Insurance Premiums paid for its workforce. As the owner, you can also be an employee and be covered under the corporate Health Insurance Plan. The only stipulation is that you should be part of the Health Insurance Plan due to your employment status, not your shareholder status.
3. Individual Pension Plan (IPP): While many entrepreneurs feel they don’t have the luxury of a substantial pension like government workers, there’s a solution. Your corporation can assist in safeguarding your retirement through an Individual Pension Plan (IPP). An IPP is a defined benefit pension plan typically managed by investment advisory firms or insurance entities. The contributions your corporation makes to an IPP are tax-deductible. Similar to government pension schemes, an IPP invests in the stock market and bonds, aiming to grow the investments sufficiently to guarantee you a consistent monthly pension after retirement. It’s worth noting that the investment income within an IPP isn’t subject to corporate or personal taxes.

In Conclusion: Harness the power of your corporation to enjoy tax-free benefits, be it through a leased car, medical reimbursements, or a robust pension plan.