Here are some things you may want to know that can lower your tax bill as a business owner in Toronto…

Salary vs. Dividends

Generally speaking, dividends have a lower tax rate than salary, are not subject to Canada Pension Plan (CPP) and the first $34,000 of dividends can be received tax free. Salary creates RRSP contribution room, and above a certain threshold may actually minimize the overall tax burden. Tip: Ask your Toronto Accountant to do the math for you to determine which method is most tax efficient in your scenario.

Automobile Reimbursement

If you use your car for business purposes, your corporation can pay you a tax deductible automobile allowance of 54 cents per kilometer for the first 5,000km and 46 cents thereafter, for the mileage that you drove your vehicle. The allowance that you receive is not taxable to you and is tax deductible to your corporation.

Defer Taxes by Incorporating

If you are running a small business in Toronto, and have not yet incorporated, you may be able to defer a significant amount of tax by leaving your excess earnings in your corporation, once you create it (hint: don’t forget to ask your Toronto Tax Accountant about doing your S.85 Rollover). If you earn a significant amount of income, you may be able to lower your tax rate from over 50% personally, to 13.5% in your corporation.