What is the best business credit card in Canada? We’re all pretty familiar with credit cards for personal use. But if you're
Frequently asked questions about Business Credit Cards
To obtain a business credit card in Canada, you need to provide a few pieces of documentation to the credit card issuer. This can include your trade name registration (if you are a sole proprietor) or your articles of incorporation (if your business is incorporated). Some business credit card issuers may also require the business financial statements and other details such as the number of active years to be provided. In addition, you will also be asked to provide your personal credit details to validate your creditworthiness as a borrower. As long as your personal credit history is acceptable and you furnish all the aforementioned documentation, it is a relatively simple process to receive a business credit card in Canada.
A business credit card can affect your personal credit score in three ways. When applying for a business credit card, the provider will conduct a hard pull on your personal credit file, which can temporarily cause an adverse impact on your score. Additionally, your business credit card issuer may report your business card’s repayment history to personal credit bureaus (such as Equifax and TransUnion). While not all business card providers report to personal bureaus, any missed or late payments on your business credit card can potentially result in an impact to your personal credit score.
You can get a business card even with a poor personal credit score. While credit card issuers usually conduct personal credit checks for business credit card applications, you can potentially get a secured business credit card where you provide collateral upfront. Alternatively, you can also get a prepaid business credit card. All things equal though, you will have access to a wider range of business credit cards if you have a good personal credit score.
Business credit cards interest and fees are tax-deductible. Any interest that you pay on your business credit card is deductible as a business expense. You can also deduct credit card fees such as annual fees, late fees and FX fees as operational expenses incurred while running your business. As a business owner, you should diligently track these expenses each month and compile your credit card statements carefully to make sure you have all the information when filing your corporate tax return.
To qualify for a business credit card in Canada, you simply need to prove that you are currently operating a business. This business can be structured as a sole proprietorship, partnership, or a corporation. Depending on the type of business you operate and the business credit card issuer you choose, you will then be asked to provide documentation such as your business financial statements and your incorporation documents.
If you are seeking a card that offers a strong set of redemption options for travel expenses and rewards, it is worth evaluating the American Express Aeroplan Business Reserve card. For business owners that envision a large amount of travel, the card is beneficial as it offers 3 Aeroplan points on every dollar of Air Canada purchases, 2x the points on eligible cars and hotels, and 1.25x Aeroplan points for every other purchase.
Generally, credit card rewards are not taxable in Canada. The Canada Revenue Agency (CRA) considers these benefits as discounts rather than a form of income. As a result, they are not taxed as other forms of income such as sales, dividends, capital gains, etc. would get taxed. The main exception to this rule is when an employee (or company) converts credit card rewards to cash. At that point, the employee or the company then has to report the cash obtained as income on their tax returns for the subsequent year.
Most Canadian business credit cards come with a personal guarantee component, particularly when they are issued to small businesses. The personal guarantee requirement falls off once the business has an established credit history or a track record of generating substantial revenue. At that stage, corporate cards may become an option.
A sole proprietor can certainly obtain a business credit card. As a sole proprietor, though, your chance of being approved correlates directly with your personal credit history, unless you are able to offer collateral as part of a secured business credit card. You can also explore the business prepaid credit cards options.
You can only apply for a business credit card once you have a business whose existence can be proven through documentation such as articles of incorporation or tax returns. It is pertinent to note that the size of the business does not matter. You can obtain a business credit card even if it’s just a one-person side hustle.
You can use your personal credit card for business expenses up to a certain point. However, once you reach a certain level of spending, your credit card issuer will suspect you are using your personal credit card for business purposes, and might ask you to switch to a business credit card. Furthermore, while you can certainly use a personal credit card for business expenses during the early stages of your venture, it is advisable to segregate your personal and business expenses for the sake of accurate reporting. A business credit card allows you to have all of your business expenses in a single place to reference and retrieve during tax season. This makes it easier for yourself (and your accountant) to file taxes and potentially defend yourself effectively if you are the subject of a CRA audit.
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