Tax - Shareholder Manager Remuneration

Question 1

Integration

Answer 1

Taxation concept to avoid double taxation of income earned in a corporation and paid to shareholders. In theory, individuals should pay the same tax whether income is earned as a sole proprietor or through a corporation.

Question 2

Dividend Gross Up Rates

Answer 2

Eligible - 38%

Non-Eligible - 15%

Question 3

Tax Advantages to Incorporation

Answer 3

(1) Tax Reduction
(2) Tax Planning
(3) Income Splitting

Question 4

TOSI Exclusions

Answer 4

(1) Excluded Businesses: for family members over 18, fi family member is involved on regular, continuous and substantial basis, business is excluded. (20 hours/week)
(2) Excluded shares - where family member is 25 or more and all of (a) income received on shares representing 10%+ of votes and value; (b) less than 90% of corporate income is from services; and (c) not a professional corporation.
(3) Reasonable Returns - for family over 25, where amount received is a reasonable return for contributions.

Question 5

Shareholder Manager Remuneration Guidelines

Answer 5

1. Salaries should be sufficient for full use of basic deductions and tax credits
2. Ensure sufficient cash left in corporation for expansion and debt service
3. Leave excess cash in corp for later dividends
4. Use bonuses to reduce business income to business limit.
5. Salaries must be reasonable.

Question 6

Salary vs. Dividend Factors

Answer 6

1. corporate tax rate and business limit
2. manager’s personal tax rate
3. available tax credits and deductions
4. CPP / EI contributions
5. Child care expenses and RRSP - need earned income to deduct
6. Manager’s age, strategy for business and preferences.