Year End Dividend Planning

PRIVATE COMPANY OWNER PRE-YEAR END REMUNERATION PLANNING:

Very recently the Ontario government announced in it’s November 2013 Economic Update that they intend on raising the personal tax rates on certain types of dividends received from Corporations in 2014.   Small business owners may pay higher personal taxes simply because they take a dividend from their company on January 1, 2014 instead of December 31, 2013.

Every year it is important for small business owners to re-visit their remuneration strategy before the year starts (i.e. pre-planning for next year), during the year and prior to the end of the calendar year.  There is no “rule of thumb” when it comes to deciding who to remunerate a small business owner in Canada, however the one advantage this group has it that they have some measure of control over the type of income they receive from the company (i.e. salary, dividend or interest) and the timing of the receipt of the remuneration (the ability to defer taxation based upon date of payments and accruals).

Some of the factors one would consider:

  • Creating RRSP contribution room (salary does this, dividends do not)
  • Additional Taxation in the form of payroll taxes (CPP, EHT and WSIB)
  • Personal Losses and Credits available
  • Profitability of the Company or Losses Available in the Company
  • What the funds will be used for?  (if reinvested in a non-registered taxable account then not removing the funds may be preferrable).
  • Have funds been taken from the company leaving the Due to Shareholder account in a Debit Balance? (i.e. the shareholder owes the company money)
  • Does the company owe the shareholder money? (consider interest being paid as it does not attract Employer Health Tax)

As you can see there are many variables and that is why we recommend that the strategy be revisited annually and tweaked as needed.  Failing to do this may result in unecessary taxes being paid.  Yes it may cost a little bit more in fees annually to have this done, however it quite frequently saves on paying the government unnecessary taxes.

If you would like to have us look at your remuneration strategy contact our offices and we would be glad to assist.

Also check out our link to our PRIVATE COMPANY TAX CHECKUP at:  http://www.karnertax.com/tax-check-up/ it might save you some tax dollars!!!

bill@karnertax.com
www.karnertax.com
T: 905-401-0023 F: 905-892-3543
B.D. Karner Professional Corporation
209 HWY. 20, Suite 1
Fonthill, Ontario, L0S 1E6