One of the financial planning issues that business owners face is how to access corporate earnings from their corporation in a tax-efficient way. We’ve provided a short list here of 5 ways to do this, any of which we have the skills and knowledge you guide you through.
There are 5 standard methods:
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Salary
- Pay tax personally
- Deduct from corporate income
- Generates RRSP room
- Allows for CPP contribution
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Dividends
- The corporation pays tax on gross
- The personal tax rate is lower on dividends
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Shareholder Loans
- Take money out on a per-need basis
- Don’t “Borrow” it for too long otherwise, CRA will declare it as personal income
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Transfer Personal Assets
- Transfer personal property to the corporation
- The amount can be different from FMV if it meets certain conditions
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Income Splitting
- Divide profits between taxpayers so more income is taxed at a lower rate
- Pay family members a reasonable salary for the services they provide to the corporation
- Consult your advisor to avoid attribution rules
There are also unique ways of utilizing life insurance and critical illness insurance to access your retained earnings. Please contact us to learn how we can get more money in your pockets and access your corporate earnings!