How to Save Corporate Taxes in Canada

If you're in a corporation, you know the bottom line is critical to your success. Great corporations are always looking for the most efficient ways to save money, and this includes taxes. In this video, I'll show you how your company can start saving on taxes. It is my hope that you will be able to take these tips and keep more of your earnings to grow your business.
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(Including Tax Tips for Canadians, Personal Tax Planning Guide for Canadians: 2014 Edition and 20 Tax Secrets for Canadians)
Table of contents
00:18 -- Tip #1 (Salary vs. Dividends)
01:28 -- Tip #2 (Shareholder Loan Repayments)
02:13 -- Tip #3 (Loan to Your Spouse)
03:01 -- Tip #4 (Gifts to Your Children)
03:45 -- Tip #5 (Incorporating)
04:58 -- Tip #6 (Employee Home Purchase Loan)
05:57 -- Tip #7 (Dividend Sprinkling)
06:41 -- Tip #8 (Pay Salary to Spouse or Family Member)
07:21 -- Tip #9 (Tax-Free Automobile Allowance)
08:03 -- Tip #10 (Interest Deduction)
About the Author
Allan Madan is an Accountant in Toronto and Mississauga. Allan enjoys working with corporations, business owners, investors and employees. He's most interested in advising clients on How to Save Taxes in Canada.
To learn more about Allan, please visit madanca.com
Disclaimer:
The information provided in this video is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided in this video.

[@AllanMadanCA]

Yes, you can register the property under the corporation. The bank will look at your personal incomes to verify if you have sufficient income to sustain the debt on the properties. You can also have your name on title to the properties, if the bank won't lend to your corporation. Then, enter into a bare trust with your corporation. This means that your corporation has legal ownership of the properties, even though you are on title. Allan

[@AllanMadanCA]

Thanks for the positive feedback. The employee home purchase loan is meant for employees to borrow money from their company to buy a personal residence. If your company has retained earnings (e.g. cash saved up), and it wants to purchase stocks, then it's better to invest through the corporation. The corporation can open a brokerage account and trade that way.

[@AllanMadanCA]

Thank you for your question. The 10 best tax tips provided pertain to Canadian Controlled Private Corporations, regardless of the province of residence. Generally speaking, all provinces more or less follow the Federal Income Tax Act. While Alberta has its own income tax act and its own corporate tax return, these tips still apply to Alberta corporations. Allan Madan, CA

[@AllanMadanCA]

Yes, I certainly develop tax plans for my clients with the purpose of helping them achieve their financial goals and tax savings objectives.

[@AllanMadanCA]

Thank you for your question. If the corporation has separate classes of shares, and those shares have the right to receive dividends at the discretion of the board of directors, then the board can declare dividends in differing amounts for each class of shares. So, your corporation can split the dividends 80/20 one year, and 90/10 the next year. Allan Madan, CA

[@AllanMadanCA]

You can only receive up to $40,000 in tax-free dividends from your corporation, if you have no other source of income. Since you already have a full time job, then the dividends you receive will be taxed.

[@razvangazi8171]

Hello Allan. Thanks so much for this informative video. I am really curious to know whether these tips apply even today. Is the 40,000 tax free dividents still a thing in 2020 ? Thank you

[@AllanMadanCA]

It makes sense to incorporate if you can save money inside the corporation, i.e. you don't require all of your business profits to pay for personal expenses. Money kept inside the corporation is only taxable at 10% (federal rate), while your marginal tax rate is 29% (federal only). Salary paid to a spouse must be reasonable in relation to the work she is performing. Make sure that the corporation issues separate classes of shares for dividend sprinkling. Allan

[@AllanMadanCA]

Yes, you can do this in Quebec too. The amount of dividends that you can receive in QB might be slightly less / more.

[@AllanMadanCA]

Yes, the first $40,000 of dividends are not subject to income tax, providing that you have no other source of income. You must ensure that the articles of incorporation permit dividends to be paid on the shares that you own. Allan Madan, CA Madan Chartered Accountant

[@xarakus]

Hi. If I am drawing a modest salary also per month from the corporation, could i still draw the first $40k as dividends tax free?

[@jmjneary]

I really appreciate these tips it is such a steep learning curve and there are so many things to keep track of. But you have answered many of my questions.

[@AllanMadanCA]

Thank you for the compliment. Incorporating is an excellent way to save taxes. Allan Madan, CA Madan Chartered Accountant

[@jeffreyma4804]

thanks so much. i always love your videos. Can you please update this video...it is now 2022.. tax rules must have changed somehow from the time when this video was recorded. Thax in advance

[@InstTaxSolutionsLLC]

Thank you for the tip about dividends versus salary.

[@manishpatel9380]

And Sir there is a Corp tax of 13.5% before dividend is paid out. As per the rules of integration, employment income & income thru a corp pays same tax! If you are talking @ income splitting, SBD and LCGE it makes sense. We have an obligation to disclose full truth!

[@AllanMadanCA]

Tax avoidance and tax evasion isn't worth it. The penalties and interest alone, should you get caught, will amount to more than the initial tax savings. Plus, you could face criminal prosecution. It always pays to be honest. Besides, you can take advantage of prudent tax planning to save taxes.

[@NarendraSingh-vs8vh]

Hi Allan, just stumbled upon your video while browsing and want to thank you for such an informative video and tips. Have been an employee most of my life but couldn't save much, planning to start my own small venture now, let's see how it goes. Thanks anyways for your kind effort and information. :)

[@jedooley]

Should you not pay yourself every year and keep only cash on hand in the corporation as you need? In the event of a lawsuit, Could they not come after all your cash you have built up if it is still sitting in the company?

[@Robbry]

Do shareholder loan repayments include buying a vehicle outright or is that still only deductible at the 15% first year and 30% second year depreciated rule?

[@AllanMadanCA]

Hi Robert, The cost of the vehicle (up to $30,000) is depreciated at a rate of 30% annually. In the 1st year, only 1/2 of the depreciation (i.e. 15%) can be claimed.

[@kathyho3985]

Tip #2: Can you kindly explain how to pay yourself $100 first before deducting as a shareholder loan to avoid taxes? Please advise.

[@AllanMadanCA]

You can pay yourself a dividend or a salary of $100 (in your example) first before repaying shareholder debt. Dividends paid must be reported on a T5 slip and salary paid must be reported on a T4 slip.

[@veenasingh6219]

Allan how much is total percentage of tax in Alberta after winding up a small company.

[@Cec67]

Thank you for all tips Allan, not sure if you have video about what expenses are deductible on personal income taxation, not as business owner but getting T4 from employer Much appreciated

[@nazhossein7363]

HELLO ALLAN,THANKS FOR YOUR TIPS.ARE THESE TIPS APPLICABLE NOW?BECUASE YOUR VIDEO IS FOR 10 YEARS AGO.

[@itsanameisntit]

I wish you were my accountant. Mine didn't tell me anything when I incorporated. I'm in Vancouver.

[@vipcanadajunk]

Hi Allan, It was a great video explained in a very simple way. I am incorporate for a year now and these tips were very usefull for me. regards Vipin

[@katianalytic215]

Do you have any updated such video for 2020 or 2021? Specially for a start up business, GST/HST info related?

[@elcanwell2887]

I have a corporation which primarily buying and selling land and properties with other parties. All expenses is claimed by the other corporation. My corporation only share the profits, eg. invest $300,000 and later on receive $400,000 from that company and make a profit of $100,000. I only have small amount of expenses, like a little bit automobile expenses. Shall I report $100,000 as capital gain or business income so that I can pay salary to myself and kids (in that case I cannot use the Capital Dividend Account)? What is your advice? Thanks.

[@sheepherder4444]

Thank you sir. All your videos are very helpful. About that dividend sprinkling. Can you set up 2 different classes of shares and unevenly distribute the dividends? Some years 80/20 other years 90/10? Also do you write up articles of incorporation? Thanks

[@AllanMadanCA]

@sheepherder4444 Thank you for your question. If the corporation has separate classes of shares, and those shares have the right to receive dividends at the discretion of the board of directors, then the board can declare dividends in differing amounts for each class of shares. So, your corporation can split the dividends 80/20 one year, and 90/10 the next year. Allan Madan, CA

[@icimatch9128]

See date..

[@baller1069]

Are you sure the first 40k of dividends are tax free? What restrictions are there on this?

[@priyankadey82]

What are your charges ?

[@jacobnathandelacruz1069]

Hi you help a lot of small businessman,, i really need you help i open a incoporate company 2weeks ago,,, i have a lot of question About my business,, do i need to pay tax ang gst monthly or can i do it at the end of the year?

[@AllanMadanCA]

Hi Jacob nathan Delacruz, You can file annually if your sales are less than $1,500,000. However, in your 2nd year and onward, quarterly HST installment payments must be made to the CRA, even though the HST return is filed annually.

[@jacobnathandelacruz1069]

@@AllanMadanCA thank you so much

[@dslboiz]

i am trying to complete my CPA CMA , i was wondering if this stuff is all relevant to my designation. because i know since CPA CA's deal more with taxation ?

[@manishpatel9380]

No one can get $40K tax-free. What are you talking about? A person pays almost the same whether he withdraws salary or dividend from Corp. You are misguiding Allan!

[@AllanMadanCA]

Thank you for your feedback. In the province of Ontario (for example) dividends paid from a CCPC to a shareholder in the amount of $40,000, results in only $1,497 of personal income tax. This is assuming that the shareholder receiving the dividend has no other source of income.

[@Kohl1312]

You are the MAN!! Are you too busy to correspond with a client from London?

[@r_mon6178]

can you pay brothers, sisters and parents dividends?

[@c1sn3r0]

Allan, great informative video. I recently created my own company (with a partner) Is it possible to pay ourselves as subcontractor of the company as a way of getting payment? Thank you.

[@santoshgeorge482]

Hi Do you have a office for filling tax

[@WildWhistler]

Sounds good Mr Madan. Are these tips from your provincial experience or would they be in effect within Alberta as well? What is your experience with incorporation within Alberta?

[@dtrantin]

Hello. If I have a full time job, and I also have incorporated a company for my consulting side business. How much tax do I pay (in Quebec) if I pull dividends. I'm assuming the first 40K is taxable in this scenario, if correct, how much? Much appreciated.

[@Ozzycanada1966]

Great videos and tips. Just created a Property Management Corp as I have 4 real estate properties (two rented & two preconstruction). My Corp would be too young let's say in a year from now so I am assuming the Corp won't be able to get a mortgage to buy another property. So is it possible for me and my wife (both shareholders) to apply to a mortgage (using our personal income) and at closing register the property under the Corp? I am in Burlington, will talk as I need an accountant, Thanks Ed

[@Tomassification]

Can I get $40k tax free dividends if I live in Montreal, QC?

[@ShawnBlais]

@allanmadan Hey Allan, thanks for the response, I wish you were in the Edmonton area I would come pay you a visit in a heartbeat! I'm under the impression that if I pay myself dividends from the company, I can pay a much lower tax rate than my own personal 29%, is that the case? Also, what would be the end game of keeping money in the corporation? I understand that it would reduce the taxes paid that year, but at some point I need to get the money out of there and into my pocket...

[@ShawnBlais]

@allanmadan And what if I do? I have a full time job earning 60k, and a sole proprietership earning 120k-140k/year which I'm planning on incorporating. I'd like to pay my wife $38k (so we show a decent amount of earned income), and then sprinkle dividends to both of us, and potentially our children to avoid taxes. Would that work?

[@sdgepr]

Ok, do I contact you on your website?

[@ShawnBlais]

@allanmadan @allanmadan And what if I do? I have a full time job earning 60k, and a sole proprietership earning 120k-140k/year which I'm planning on incorporating. I'd like to pay my wife $38k (so we show a decent amount of earned income), and then sprinkle dividends to both of us, and potentially our children to avoid taxes. Would that work?

[@rbsingh7020]

Hello allan Madan, I am ranbir bajaj from thailand. i want to establish cooking oil factory in canada its 100 million cad project can you help? regards

[@AllanMadanCA]

Please contact me at [e-mail] so we an discuss further.

[@juniors3275]

Some old rich white men made some rules that kept them balling for a minute!

[@AllanMadanCA]

Yes. You can also contact me at [phone] to set up a meeting.

[@mrchocolate4eva]

What he says is true legally but it really doesn’t apply to 99% of the people. It’s just a way for him to complicate and take your money in accounting fees.

[@AllanMadanCA]

My email address is [e-mail] Allan Madan, CA Madan Chartered Accountant

[@AllanMadanCA]

Thank you for your question. If the corporation has separate classes of shares, and those shares have the right to receive dividends at the discretion of the board of directors, then the board can declare dividends in differing amounts for each class of shares. So, your corporation can split the dividends 80/20 one year, and 90/10 the next year. Allan Madan, CA