Reducing Taxes
Through Dividend-Salary Mix Calculations
Should I take wages or dividends from my privately
owned corporation? What is the best way of taking money out of my company? In
other words, what will result in the least amount of income taxes?
A Canadian accountant will perform a dividend-salary
mix calculation to determine the best way of withdrawing money from the
corporation.
Even though Canadian income tax laws are different
from other jurisdictions, some of the same principles of tax planning will
still apply.
In order to qualify for Canada Pension Plan (C.P.P.)
benefits or to make Registered Retirement Savings Plan (R.R.S.P.)
contributions, there must be some earned income. This requires the payment of
wages. In fact, many accountants will make sure that their clients have
maximized their C.P.P. and R.R.S.P. contributions for the year in order to
ensure sufficient future retirement benefits, even if it costs a little more in
income tax and/or payroll taxes.
On the other hand, the Dividend Tax Credit reduces
the tax payable on dividends received from the corporation, since the
corporation has already been taxed on its income. Therefore, the accountant may
recommend that the corporation pay some dividends.
Sometimes, if the owner doesn't require the cash,
the income is simply retained inside the corporation and tax is paid at the
lower small business rate by the corporation. If the corporation had income in
excess of the Small Business Deduction, it likely would pay it out in
wages.
Depending on the circumstances of the taxpayer,
wages may be the least expensive way of taking money out of the corporation.
Sometimes, dividends are better. Generally, a mix of both is required.
An accountant will have to balance many factors to
come out with the optimal mix for you. He will consider your family situation,
other income sources, losses, investment and retirement objectives, et cetera.
Keep in mind that the lowest possible tax bill for the current year is not
always in your best interests.
More Government
of Canada Income Tax Resources
Welcome
to the Canada Revenue Agency
This page deals with information,
services, and applications that help promote compliance with Canada's tax and
regulations; including forms, publications, and guides.
Canada
Customs and Revenue Agency
This page provides tax topics links for
individuals and let you search tax topics alphabetically.
NETFILE
The NETFILE transmission service is open from February 11, 2008, until
September 30, 2008, for the electronic filing of your 2007 personal income tax
and benefit return. Tax returns filed via NETFILE must first be prepared using
one of the commercial tax preparation software packages or Web applications
certified for NETFILE.
TAXWIZ
- Canadian tax software designed with the beginner in mind.
TAXWIZ is no longer available. In its place, we are pleased to offer QuickTax
Basic, Standard or Platinum, all of which are designed to make tax time easy -
even if you're using QuickTax for the first time.
Burlington
tax service income tax preparation
Founded
in 1985 our company is locally owned and offers tax preparation services to
individuals, small businesses, and corporations. Burlington Tax Services
provides servics to taxpayers, proprietorships, and corporations in Halton
Region, Hamilton-Wentworth, and the GTA. Canada-wide and worldwide Canadian
income tax preparation.
taxtips.ca
- Canadian Income Tax and Financial Information
Throughout this website we have resources, tips and calculators which will
allow you to compare different scenarios. You will be able to see what a big
difference a small change in your money management decisions can make. You may
not think that this applies to you when you are young, but this is when it is
most important, because you have the luxury of time (and compounding!) on your
side.
CANADA
INCOME TAX LAW INFORMATION AND TAX PLANNING AND
MINIMIZATION...
Canadian taxation information from a tax lawyer in
Toronto, Ontario, Canada with original income tax articles, legal and tax
planning advice to save money on income tax & GST.
Canadian
Tax Foundation
The Canadian Tax Foundation is an independent tax
research organization, and a registered charity, with over 8,000 individual and
corporate members in Canada and abroad. For over 50 years, it has fostered a
better understanding of the Canadian tax system, and assisted in the
development of that system, through its research projects, conferences,
publications, and representations to government.
