What Canadian Businesses Need To Know About Taxes, Insurance, and the Link Between Them

Starting and operating a successful business in Canada requires several considerations that every entrepreneur should keep in mind. One of the main factors is that all businesses should comply with the insurance and tax laws to ensure that the operators meet the standard expectations.  Read on to learn more about taxes, insurance, and the link between the two.  

Corporation Income Tax Ratios

Each business has to be registered under the Canada Revenue Agency and is required to pay tax to operate legally.  For large corporations, that basic tax comprises 38% of the taxable income and is reduced to 28% after the federal tax abatement. After the tax reduction, your company’s net tax rate will be 15%. The net tax rate for small businesses comprises 9% of their taxable revenue. In other words, both small and large corporations operating in Canada are mandated to pay tax to the CRA. The rate is determined by factors like industry, size, and revenue generated by the business.  

Health Insurance and Taxes

There are mainly three types of health insurance in Canada: Private insurance sponsored by the employer, Public Health Insurance provided by the government, and Personal Health Insurance offered by private insurance companies. Health plans that are provided by private insurance companies are taxable, whereas public health insurance and private health insurance are not. However, public health insurance is funded by taxpayers in Canada, and different individuals and companies paying various taxes contribute to these public health plans. 

Business Insurance

Business insurance offers you protection against unforeseen losses that your business may encounter in its day-to-day operations. There are different types of insurance policies available, so you can choose the type that suits your industry, revenue, and size of business. The common types of business insurance include liability, commercial property, errors, and omissions insurance. The following factors determine the cost of your premium:

  • Annual revenue
  • Size and location of a business
  • Years of experience
  • Number of employees

Insurance is not required to operate a business but it is critical to get a policy for your company to protect it against unforeseen events like defective products, injuries, and damages caused by third parties. You need to speak with your insurance broker to get a policy that suits your business needs. The other thing that you must know is that you need to consider your profession before getting any business insurance. 

The other important aspect of business insurance is that it only covers incidents that involve third parties, and it does not cover you or your employees. It also does not cover cost estimates, contractual liability, or intentional criminal acts. There is a different insurance policy for the worker.  

Business Insurance is Tax Deductible

It is possible to deduct insurance premiums from your business expenses. You can subtract the following insurance premiums as business expenses: professional liability insurance, general liability insurance, cyber insurance, and commercial property insurance among others. By deducting various business expenses from your taxable income, you reduce your taxable income. You must include the cost of insurance for vehicles, rental property, manufacturing, and vehicles. 

Your premiums together with other deductible expenses should be signed before you start getting tax benefits from them. For instance, medical expenses and health insurance should be at least 10% of your gross income before you start getting tax deductions. However, there are certain insurances you cannot deduct as business expenses like homeowner’s insurance and auto insurance. You can only deduct car insurance if you use the vehicle for your business. 

The Tax Act Business in Canada maximizes the deductions that you are entitled to get together with other business expenses. You must get more information about how taxes and insurance work before you start a business so that you do not violate the laws. Both tax and insurance are somehow related though the link is indirect. The amount you pay for taxes is somehow affected by other expenses related to insurance you pay for different elements of your business.  

Before you start a business in Canada, you must know that you will be required to pay taxes to the Canada Revenue Agency. The tax you pay largely depends on the size of your business and its revenue. Your business should be insured to protect it against unprecedented losses that it may encounter in its day-to-day operations. There are different types of business insurance policies that you can consider. As you can see, there is an indirect link between taxes and business insurance. Fortunately, business insurance and other expenses are deductible from your taxes. 

What Canadian Businesses Need To Know About Taxes, Insurance, and the Link Between Them was last updated December 14th, 2020 by Charlene Brown

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