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How to Take Money out of Your Small Business Tax Efficiently

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September 16, 2011 , ,

This is part one in a multi-part series explaining some of the lesser know strategies used to effectively get money out of your corporation most tax efficiently.

Many small business owners work a lifetime to build up retained earnings in their corporations, only to have CRA punish them with double taxation when they decide to take that capital out of their business.  If you have planned well, you’ve maximized your RRSPs or other savings vehicles and have paid down personal debt.

Through good planning advice, you can distribute money out of your corporation in various tax-preferred ways.

  • Declare dividends to a lower income shareholder (Spouse or Children over 18). 
    • You can issue shares to children over 18 years of age, as well as your spouse, and declare dividends to those share classes.  In many cases, these dividends can be received with almost no tax implications.  This can be very helpful in funding post-secondary education, or other expenses relating to your children
  • Utilize the Capital Dividend Account (CDA)
    • 50% of any taxable capital gains generated inside the corporation will credit the CDA
    • Death benefits of a life insurance policy less the Adjusted Cost Basis will also credit the CDA
    • Capital Dividends can be distributed to shareholders tax free.
  • Refundable Dividend Tax on Hand (RDTOH)
    • Between 25-33% of Investment income earned inside a corporation (excluding capital gains), are credited to the RDTOH.
    • The company recovers 1/3 of every taxable dividend dollar it pays out against this account.

tax-sheltered-retirement-strategy

Utilizing the CDA and RDTOH still requires you to take on investment risk associated with generating the income necessary to utilize them.  If you still find yourself with the problem of having too much capital locked inside your corporation, be it your operating business or your Holding Company, there are some other ways to deal with it that will cut CRA out – and many are risk free.  There are a few examples that involve permanent life insurance, which will be addressed in Part 2 of the blog.

Many of these strategies require proper advice and guidance to ensure they are done properly.   Be sure to sit down with an estate and tax planning specialist to review your business’s specific situation and to learn which strategies may be best. To learn and understand more please contact us here at TriDelta Financial.

This article was written by our VP- Estate Planning, Asher Tward.

 

 

 

 

 

 

 

 

Why Should I Use a Tax Professional in Canada?

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July 4, 2011 , ,

Have you ever wondered about the benefits of using a professional tax preparer in Canada?

We asked the same question to a highly rated local company and received the following response:
Tax laws can be complicated and change frequently. Your unique situation also changes year to year. Using a professional tax consultant ensures you pay as little tax as possible.  They can dig into your financial situation and are trained to find all the applicable credits available and ensure fast accurate filing.

Over the years, Canada Revenue Agency (CRA) has changed the way they process, monitor and verify the accuracy of the individual returns. They continue to improve their ability to automatically process and validate tax returns as they are filed. They have also improved their ability to verify if a taxpayer has included all pertinent financial transactions in their annual tax return. It is more important than ever that you include all income, deductions, and credits applicable to your unique situation. A tax professional will work with you to ensure this happens.

A tax professional will also review:

  • Your revolving life situation, which results in new or different credits/deductions. Marital status, dependants, even taking care of your parents, can provide opportunities to minimize your tax liability.
  • Programs such as the Home Renovation Tax Credit and Pension Income Splitting must be calculated and reported correctly.
  • Which spouse should claim the Child and Children’s Fitness Tax Credit
  • Your ability to split Capital Gains/Losses and other Investment Income with your spouse.
  • Fees paid to your tax professional are also considered tax deductible.
  • They might show how  you can donate “in kind” to charity. You should consider donating appreciated securities directly to your charity of choice and eliminating all tax on any accrued capital gains.
  • You will be encouraged avoid getting a tax refund. If you get a large tax refund each year, consider applying for a reduction of tax at source using CRA Form T1213.

Benefits of Using a Tax Professional

Establishing a relationship with a financial planner and tax professional means that you will have a team looking out for money saving opportunities that apply to you. You will benefit from their specialized skills and have the ability to discuss life changes to determine how your financial and tax situation may be affected.

[IN THE NEWS] Don’t Let Your Nest Egg Get Fried

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March 4, 2007 , ,

After saving for years in your RRSP, you might lose half of it to the taxman when you start to withdraw. In this Globe and Mail special report, I was interviewed by Marjo Johne and we discuss better tax strategies for RRSP withdrawal.

Don’t Let Your Nest Egg Get Fried

By:  Marjo Johne, Special to the Globe and Mail- March 2, 2007

You’ve spent years contributing to an RRSP and now you’re retired and ready to start dipping into your nest egg. Unfortunately, so is the taxman, who can take as much as half of the RRSP money you withdraw, depending on your total income each year and where you live.

While you can’t avoid paying taxes on pension income, financial experts say there are ways to minimize the portion Canada Revenue Agency takes from your RRSP money.READ  MORE AT SOURCE…

 

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