Remuneration strategy in the new economy
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Remuneration strategy in the new economy. SEPTEMBER 28, 2011. INCOME SPLITTING. Why do business owners income split? Reduced taxes Earned income for RRSP contribution Childcare expense deduction CRA Audit Project?? So, what can you do?. CASE STUDY FACTS.

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Remuneration strategy in the new economy

Remuneration strategy in the new economy

SEPTEMBER 28, 2011


INCOME SPLITTING

  • Why do business owners income split?

    • Reduced taxes

    • Earned income for RRSP contribution

    • Childcare expense deduction

  • CRA Audit Project??

  • So, what can you do?


CASE STUDY FACTS

  • Mr. A owns 100% of ABC Manufacturing Inc.

  • In 2010:

    • Gross revenue = $3M

    • Salary to Mr. A = $300K

    • Salary to Mrs. A = $50K

    • Net income = $150K


TOTAL TAX BILL - CURRENTLY

  • Corporate: $150,000 at 15.5% = $23,250

  • Personal:

    • Mr. A Tax on $300,000 salary = $120,000 CPP $2,200

    • Mrs. A Tax on $50,000 salary = $9,350 CPP $2,200

Total Net after tax = $216,250Total tax and CPP payable = $157,000


WHAT’S WRONG WITH THIS PICTURE?

  • Not utilizing full Small Business Deduction

    • 15.5% corporate tax on up to $500,000 corporate income

  • Overpaying total corporate and personal tax…but by how much?


REMUNERATION STRATEGY #1

(assuming special share class issued to mrs. A)

  • Corporate: $500,000 at 15.5% = $77,500

  • Personal:

    • Mr. A Tax on $132,500 dividends = $24,375

    • Mrs. A Tax on $132,500 dividends = $24,375

Total Net after tax = $216,250 (same as current situation)Total tax and CPP payable strategy #1 = $126,250

Total tax savings = $30,750 ($157,000 - $126,250)


REMUNERATION STRATEGY #2

(assuming family trust set up with beneficiaries)

  • Corporate: $500,000 at 15.5% = $77,500

  • Personal:

    • Mr. A Tax on $58,000 dividends = $3,937

    • Mrs. A Tax on $58,000 dividends = $3,937

    • Kid A (20) Tax on $58,000 dividends = $3,937

    • Kid B (18) Tax on $58,000 dividends = $3,937

Total Net after tax = $216,250 (same as current situation)Total tax payable strategy #2 = $93,248

  • Total tax savings = $63,752 ($157,000 – $93,248)


For more information, please contact:

MITCH SILVERSTEIN, CA – PartnerSBLR LLP Chartered [email protected]

2345 Yonge Street, Suite 300Toronto, Ontario M4P 2E5T: 416.488.2345 x 274W: www.sblr.ca


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