I am not a accountant so i cannot crunch numbers..

Corporate tzx rate for SB is 16.5% not 10% , plus u add the marginal tax rate on dividends which is close to 20%.. u will find the break even point.


I think between 40K to 70K somewhere lies the point where Dividend is better than Salary.

I think the op's question was about opening corporation, so i just gave a high level impact of the ownership question.


For business tax related matters , i would recommend going to a accountant instead of taking my word...

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Originally posted by Fido

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Originally posted by dudewheresmycar
Generally preferred way is to pay salary upto 70K per person and only after that paying dividend is selected as a strategy.

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Can you back that up with some numbers ??

I feel that dividend 100% and no salary in case of Corporation may leave more net income with you as compared to salary taking ...

For one Corporate tax rate for small businesses is 10% roughly as opposed to higher tax rate on salary income .

For 2 : in case of eligible dividend income the tax paid on dividend is credited back and the net tax liability is less ...

Crunch some numbers and let us know what it looks like ...

Plus there s no EI that you can get if you are the director or the spouse .. so it makes less sense to pay EI at the first place ....

The only down side I see in case of dividends is lack of CPP contribution and subsequent pension benefits post retirement ... You need to make a trade off here .

I would say keep 2 classes of shares amongst both the spouses so as to divide dividend at will from year to year .

Also give a small amount of salary say 10K each so as to reap salary based deductions .....

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At any amount , dividend will give you more returns than salary .... since salary tax rates are higher than dividend . Can you please tell us how salary can get you more ... I think you quoted 70K / person above

Try this calculator ... feed in some pseudo figures and you will know what I am talking about ..... we may not be accountants but we must be aware how this is being done rather than completely relying on the Accountant ( some of whom as I have experienced are not competent enough )

http://www.taxtips.ca/calculators/taxcalculator.htm

The poster has also needed information on ownership which would further determine dividend disbursement . This is very important and can be determined when the Inc is being set up ... Golden rule is to have 2 classes of shares .... b/w the spouses so that dividend rate can be changed at will from year to year to split the income .

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Fido.

Paying dividend you also lose RRSP contribution room.

Income splitting reduces salary tax on each person thus reducing taxes.
RRSP contribution reduces income tax rate even further.



This is not as straight forward.. every persons situation is different, thats why it is best to ask accountant..

Most accountants are supposed to have a spreadsheet that does this kind of comparison..


I used this calculator , it does not tell me divident is whole lot better upto 40-50 K
http://www.walterharder.ca/MarginalTaxRateCalculator.asp


I think the main advantage of dividend is no CPP deduction.

Taking the calculator you ve mentioned .... I m assuming this one ... http://www.walterharder.ca/T1.asp ( All calculators would work alike ) ... I did a minor substitution of 50K salary each to 50K dividend each and here are the results :

With 50K salary each , balance tax payable is 8598 + 8917 = 17515

And with 50K dividend each balance tax payable is 2107 + 2427 = 4534 .

Even if we were to add Corp Tax @ 22% (2011) and deduct the CPP contribution .... we would still break even .

Plus you save a lot of head ache on payroll , EI & CPP

Plus you can leave retained earnings in the Corp which can be disbursed as dividends in an year where income has been less .. thus acting as an RRSP .

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Fido.

Pay roll is very easy to run..I only run 1 per year. If u run every month it becomes a headache..

EI is not mandatory should not be withheld if u are the owner of business , because u can never claim ei. Only maternity is allowable way for owners to claim EI.


The benefits of CPP should not be ignored.. It is a inflation indexed pension.. which is very very hard to get unless u are in government service.

I think most accountants suggest Dividents beyond 50K because at that point u max out CPP.

Hi Guys:

Lots of info. Thanks! Please see my PM.

Thanks!

Generally preferred way is to pay salary upto 70K per person and only after that paying dividend is selected as a strategy.

Reply to Dudewheresmycar...

How abt not setting a payroll & taking all /part income as dividend divided with spouse...is a profitable option..I talked to one accontant & as per him..upto 33k each with self & spouse can be paid as dividend without much tax implication...why then complicates it to do the payroll...when goal is to save more tax...corp tax r lower than personnel tax....any thoughts FIDO & dudeswheresmycar appreciated here...

& you are right most of accountants are just bullish...