The first step to reducing your corporate tax bill is to get out of debt.
That’s because if you owe any money, it will be taken out of your pocket.
“You’ve got to be careful, because you can’t go back and pay it off if you don’t owe it back,” says Kevin Ritchie, a tax accountant with CFA Tax, a Toronto-based firm that specializes in corporate tax strategy.
That means you can only do that if you’ve had an advance payment or a loan or an advance to pay it back.
“That’s how you get out debt,” says Ritchie.
For that reason, it’s important to have a plan for how you can pay off your debts.
“If you owe money to a creditor, you can get a creditor to agree to an advance,” says Paul Elam, a partner at law firm Ritz & Gray LLP in Toronto.
“And you can put that into a tax-free savings account and you can use it to pay off those debts.”
If you owe a debt to your employer, you may want to ask for a refund of some of that amount.
It’s called a tax credit.
If you want to be sure your employer doesn’t get your credit, contact the Canada Revenue Agency.
“There’s a tax law in Canada that says if you have an advance, you’re supposed to make a payment,” says Elam.
“But you can also take a loan.”
If the debt is a personal loan, that’s known as a personal mortgage.
“It’s the one debt you can go to a lawyer for assistance with,” says Michael Gagnon, an assistant professor of tax law at the University of Toronto’s Osgoode Hall Law School.
You should also have a document that shows you have no obligation to repay the debt.
“To get it off your tax return, you need to provide documentation that says, ‘I don’t have an obligation to pay this debt,'” says Eram.
That document is called a cheque, and it can be used to pay the debt, he says.
“Your employer will give you a cheques, but it’s usually a bank cheque.”
For example, if you want a chequing account, ask the bank to send you a letter that gives you a PIN code to access the account.
“This PIN code will give access to the account, but you have to pay all of your tax on the account.”
For more information, go to Canada Revenue’s website.
