Are you a business owner or a professional that owns a private Canadian incorporation? Then you are paying taxes twice on the same income source.
Owners of private Canadian corporations pay 12-14% business tax, then pay tax again at a personal level when they (as “owners” of the company) receive a salary as an employee or pay out after-tax profits as dividends to shareholders. Estate and wealth planning services will help you avoid erosion of your wealth through avoidance of the double taxation trap.
Double taxation has high costs that you may not be aware of. Besides the regular corporate tax rate, the salary paid afterward is taxed at the regular personal income tax rate.
This may end up in the 40% tax bracket, making the double taxation result in up to 60% of your earnings paid out in taxes. (14%+40% = 60%)
Have you considered other ways to withdraw money from your incorporation so you pay as little tax as possible?
Estate & Wealth Planning Provides Solutions for The Double Taxation Trap
Many owners of private Canadian incorporations require money to be paid out for many reasons like personal expenses, child education expenses, or vacations. Others require funds to make major purchases or to pay personal debts that are non-tax deductible.
The issue is that the commonly used methods of transferring money from your incorporation to your personal hands have serious limitations that can erode your wealth.
Tax problems arise when someone simply takes money from the corporation as personal income because as the amount of money earned increases, the tax brackets can escalate to over 50% of personal income earned.
Salary and Dividend Withdrawals Have Tax Impacts
Most people are aware of two basic ways to withdraw surplus funds from their corporation into their personal account: salaries and dividends. Here are some examples of the tax impacts of each method:
1. Paying Salary to Shareholders
You can pass money to yourself from your corporation by paying yourself a salary and bonuses, and both are counted as personal income. Once personal income exceeds $41,725/ year (in 2020), the tax rate is 24%.
Paying out salaries means setting up a payroll, which simply means paying salary regularly to employees plus making monthly remittances of income tax to the CRA. If you already have employees, then your accountant can simply add you to the existing payroll.
This may sound acceptable, but take note: salary may be deducted from your incorporation income before taxes, but there are extra costs!
When paying salary to shareholders, employee and employer portions of employment insurance (EI) and Canadian Pension Plan (CPP) contributions must also be paid.
2. Paying Dividends From Retained (After-Tax) Earnings
Another option is to have the corporation pay you dividends from retained earnings representing the after-tax money earned from the corporation.
If the corporation is making less than $500,000 profit, your company is taxed at the small business deduction (SBD) rate of 12%, and whatever money is left after the corporation tax can be paid out as dividends to shareholders.
Paying dividends is not a solution because the double taxation trap will strike again!
The dividends subjected to tax (“non-eligible dividends”) in the amount of around $42,000 are taxed at 13.47% (as of 2020) and the bigger the amount of dividend payout, the higher the tax bracket will be.
This can escalate to around 44% taxes!
This means that there is a limit to the amount of dividends that the shareholder can take into their personal account without increasing taxes.
Is there a better way to take a lot of money out of the company without paying too much taxes? (Read on…!)
Is Paying Both Salaries and Dividends An Option?
Some people have a smart accountant that help them find the best combination of salaries and dividends in order to reduce personal income tax.
One way is to pay a high salary to keep your small business deduction tax rate to 12%, and the corporation profits below $500,000. Any money left over can be paid out in dividends from retained earnings (money left over after taxes are paid).
But this still results in double taxation. There really is no way to avoid it.
So now we come to the burning question:
Is it possible to withdraw a LARGE amount of money from excess corporate funds and pay minimal personal taxes?
There is a solution to take money out of your company tax-free!
You have worked hard your entire life by studying and maximizing your potential to earn your money and secure your future.
Are you interested in maximizing your income, maintaining your wealth, and leaving as much of your estate as possible to your loved ones?
We have the solution for you!
It’s called the Duplicate Money – Cash Out Strategy.
This financial strategy will:
- Create a tax shelter in your corporation to grow your money further
- Allow you to move a large chunk of money into your personal hands TAX-FREE
We can show you how.
By working with small business owners from many industries for many years, we have come to understand the complexities of this problem.
Our experience has given us the expertise to come up with creative solutions that will help prevent income lost to taxes, and let you keep more of it in your hands.
Strategies involving estate-planning can be complicated and require expert advice. Failure to do so may result in the CRA taking a large chunk of your estate.
Because of the complexity of this Duplicate Money – Cash Out Strategy we advise you to consult our Licensed Business Financial Advisor here.
We have the knowledge, expertise, and experience you need to minimize tax, maximize the value of your estate, and leave as much as possible to your loved ones.
Click here and learn how to preserve your wealth by taking matters into your own hands.
Our solution is through the creative use of an insurance policy that will allow you to withdraw a large amount of money, just as described above. The complexities of this solution are highly dependent on your personal situation and require careful consideration.
Every client is unique, and in order for us to help you please click here to make an appointment.