5 Benefits of filing Corporate Tax Returns for Incorporated Businesses in Canada

Filing Corporate Tax returns benefits business owners if they pay individual income tax. Tax returns deduct medical insurance and other benefits, including retirement plans and tax-deferred trusts.

Apart from these, the total amount of business losses will be deducted from your payable corporate tax. However, sometimes, a business might have to show its intent to generate profit before incurring a loss.

Corporate Tax?

Corporate tax is the tax that is deducted from the surplus value of a corporation. The tax is paid on the taxable income of a company, including the revenue after deducting the cost of producing goods, general & administrative expenses, selling & marketing, depreciation, R&D, and other operating costs of a business.

Governments regulate corporate taxes as an income source.

Benefits of filing Corporate Tax return

Business owners are inclined towards filing Corporate Tax because it enables them to reap the benefits of paying tax, which is probably one reason they want to incorporate their businesses to protect from liabilities.

Tax benefits, such as income tax splitting, low corporate tax rates, income deferral, and capital gains, are not entitled to unincorporated businesses.

In this informative, we briefly discuss the 5 benefits of filing Corporate Tax returns. So, keep scrolling!

The benefits are as follows-

1. Limited Liability

It is the most important advantage of incorporated businesses that filing tax returns protects the personal liabilities of business owners, as corporations are legal entities that pay taxes, incur debts, and can also be prosecuted in a court of law.

However, in the majority of cases, the personal assets of business owners are protected against creditors or other legal issues taken up against the business. Talk to professional CPAs at SJT CPA to learn more about exceptions.

2. Income Tax Deferral

Another benefit of filing a tax return is that the income your business generates for your personal use can be deferred as personal tax on the income by leaving it in the corporation till it is needed.

The excess profit can be reinvested into the business or other investments, enabling you to defer personal taxes on withdrawals.

3. Lower Tax Rates

Business owners will always look to take full advantage of tax benefits. By incorporating your business, you get taxed at lower rates when compared to others.

Incorporated businesses benefit from small business deductions, reducing your corporate income tax.

4. Lifetime Capital Gains Exemptions

The other most significant advantage of filing a Corporate Tax return is when you want to sell your business.

At the time of selling an incorporated business, you sell a legal entity with assets and liability, unlike an unincorporated business.

In an incorporated business, the Lifetime Capital Gains Exemptions will save you from paying taxes on the profit from sales.

In 2021 the capital-gains tax exemption limit was increased from $883,384 to $892,218 for the same tax year.

5. Income Splitting

You can pay dividends to your family and children if you have an incorporated business. This will be based on the portion of the income you want to distribute to lower your tax bracket. This is why the dividends paid to vary from year to year, and so is the recipients receiving them.

You are only permitted to distribute dividends between families to reduce tax burdens if you have updated the amendment of shareholders in your minute book.

Note: Shareholders do not receive dividends. Only employees who are also shareholders can receive dividends.

Wrapping Up!

Business owners often fear the demands of tax season and Canada Revenue Agency (CRA) filing requirements.

Despite all the benefits, filing a tax return is a complex and confusing process. This complexity can be detrimental to businesses keeping up with the changing tax policies.

For assistance with filing Corporate Tax returns, only trust professional and certified CPAs, who are adept and aware of the changing taxation policies. SJT CPA is one of the most trusted Accounting and Taxation firms in Montreal, Quebec, with an excellent track record for providing Accounting and Taxation solutions to businesses. Connect Now!