Incorporating Your Problems – Part 3 of 4 – Taxation.
Still the same disclaimer as Part 1.
First point: Corporations pay tax.
Second point: CORPORATIONS PAY TAX
I don’t care that your landscaper or sanitation engineer told you if you incorporate you won’t pay tax. Someone, somewhere will pay the tax. And if you have a bunch of losses in the corporation that you can’t use yourself, then you have had bad tax advice and may have paid too much tax personally.
Third point: You may want to put some items in the corporate name. There are lots of reasons why you would and wouldn’t. If you are transferring small items, it may be easiest just to “sell” them to the corporation. You may need to consider PST &/or GST so make sure you understand when and how you would charge those.
If transferring a large item, there are certain provisions in the Income Tax Act to do so without getting any tax consequences. But caution – don’t do it on your own unless you are a lawyer or an accountant who understands s.85 of the ITA.
If you’re thinking of transferring an automobile into the company, make really, really sure you understand whether it is a passenger vehicle, what the standby charges are, and whether there are associated operating cost benefits. Don’t just transfer it in to the company and expect someone can help you fix this easily.
And if you’re going to ask whether to lease or buy, there are many considerations as to why you’d do one over the other. Often this decision comes from the car salesman, but hey – they have a 50% chance of making the right decision for you. There is not “one size fits all” answer, so if you’re getting professional advice, expect to pay for it.
For goodness sake – keep some sort of travel log. There are many apps that your phone will use. You can keep a paper log. If you’re really high tech you can try something like Odotrack. But if you don’t know how to allocate personal vs business use on your passenger vehicle CRA may decide for you.
This means that if you purchase a passenger vehicle in the company name you will may see a standby charge on a T4 and there may be some other operating benefit. The whole realm of passenger vehicles and their taxation is often one of the largest mistakes accountants see. This can negate any benefit of having the corporation in the first place. Even worse, people who often get this advice from their golf pro, hair dresser or some other “friend” often don’t want to admit they made a mistake and thus blame their accountant when CRA audits and reassesses them on this
Fourth point: if the corporation purchases assets, they belong to the corporation – NOT you personally. If you use them personally, there may be tax implications. For instance, your cell phone may have a taxable component if you only have one.
Think of this logically: if you are getting a personal benefit you should expect the government wants their share.