The strategy is simple. Have your corporation pay for expenses that you might have paid for personally. For example, if you are looking at putting an office in your basement so that you can work from home, have your company pay for it. Or if you are having a company barbeque party at your home, have the company buy a new barbeque. When the party is over, leave the barbeque at your home. Or go on a trip and charge it to the business. Is it a business trip or a pleasure trip? The problem is that all of these can be taxable shareholder benefits under Section 15 of the Income Tax Act of Canada. In plain English that means these purchases made by the company are taxable to the shareholders. What is worse is that they can be double taxed. If an auditor finds these benefits to the shareholder paid for by the company, they can not only tax the shareholder for the benefit received, but they can deny the deduction to the company. This is double taxation.
How do you fix this? It is almost impossible in my experience to fix this once it is done and found by the CRA auditor. However, there is some grace given if you find it yourself and act to fix it before it even comes before an auditor. You can also work with your accountant to use legal methods to get similar benefits at reduced tax rates.
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