What is Financial Leverage?
Leveraging is the act of utilizing borrowed capital as a funding source to generate a return on your assets. It can also be referred to as the amount of debt that is used to finance an asset. Still not sure? Don’t worry, we’re here to help. For over 3 decades, we have been helping business owners like yourself organize finances, create wealth, and transform wealth into a legacy. Make sure to click here and book a FREE consultation with our experts in order to discuss this further.
Don’t forget to read the entire article to understand how we can help you leverage shareholder and employee loans.
How do corporations use financial leverage?
One of the benefits of incorporating your business is the ability to borrow money from your corporation tax free. The provision of the Income Tax Act that deals with shareholders’ borrowings from their corporation allows directors of the corporation to borrow funds from their corporation in the following circumstances.
- the loan was made to the employee or his/her spouse (or common-law partner) to enable him/her to purchase a home;
- the loan was made to the employee to assist him/her to acquire new shares of the capital stock of the corporation;
- the loan was made to the employee to enable him/her to purchase a motor vehicle required in the performance of his/her employment duties;
- the loan was made to an employee who was not a “specified employee” (an employee who is not dealing at arm’s length with the corporation – i.e. 10% or more shares held in the corporation)
Looking to incorporate your business?
Incorporating your business for the first time may feel overwhelming. Often times, business owners opt to incorporate their business online. However, they do not consider that these online registries do not provide any advice or guidance specific to their business. Incorporating your business requires countless important decisions regarding directors, shareholders, share structure, effective date etc. These decisions have significant legal and tax implications. It is extremely difficult for business owners to make all these decisions without the guidance of an experienced professional.
But don’t worry! CPA4IT has got you covered. We provide our clients with guidance and strategies on how to leverage the tax benefits associated with incorporation. Our team of experts will help you choose the best corporate structure for your business. We also ensure all the relevant forms and filings of our clients are completed on time. We have over 3 decades of experience in helping businesses owners register for incorporation. With the help of our vast experience and industry knowledge, we enable our clients to get their new business off the ground and running quickly and easily. So what are you waiting for? Click here to book a FREE consultation with our experts and discuss this further!
Employee Loan
A loan is considered an employee loan if it would be reasonable to conclude that the loan would not have been given to the individual except by reason of employment. In CRA’s view, a loan is made to an employee if it can be considered part of a reasonable remuneration package.
Often times people have several reservations about whether they want to be a full time employee of a company or not. To make this decision easier, we have listed several pros and cons of full-time employment:
Pros of Full Time Employment
- Job security
- Additional health and financial benefits being provided
- Eligible for both Workers Compensation (W.S.I.B.) and Employment Insurance (E.I.)
- Candidates may receive a severance package when employment is terminated
Cons of Full Time Employment
- In the current economic climate there is no job security at any level
- Employers pay their employees 20 – 40% less than contractors to account for the benefits they supply them
- Personal income tax rates are the highest and have the least amount of tax strategies available
- Employees must pay E.I.
Why do you need a tax professional?
It can be extremely difficult to be constantly aware of the ever changing tax laws while working hard to grow your business. Therefore, it is absolutely crucial to work with an experienced professional who can provide a customized tax service for your business.
If you are looking to keep more of your hard-earned money, it is extremely important to consult with an expert accountant who specializes in your niche. Our industry knowledge and unique Audit Protection Service can help you maximize your retained earnings so that you can transform your wealth into a legacy. We have spent decades developing a system designed to make the filing of your taxes as simple as possible.
Make sure to click here and book a FREE consultation with our experts to discuss this further.
