|
|||||||||
|
Rawski & Company
Chartered Professional Accountants, Professional Accounting Firm, Professional Corporation 201-9488-51 Avenue, Edmonton, Alberta, T6E 5A6 780-761-1115 |
The following article was first published in the St. Albert Gazette:
EXPERT OPINION | ||
---|---|---|
How does corporate taxation for owner-managers work? The income tax act attempts to ensure that if an individual earns income directly vs. using a corporation that the tax paid will be the same. On $100K of income this is true to within $1,000. Here is how it works. If a corporation has $100K of taxable income before the owner is paid – there are two options: First, the owner can take a $100K salary and pay the 25% or $25,000 of tax directly. Alternatively, the corporation pays 14% or $14,000 of tax first. Then, when the after tax cash of $86,000 [$100K - $14K of tax] is removed by a dividend, the owner pays the other 12% or $12,000. The total tax cost is 26% or $26,000 [$14,000 + $12,000]. In this scenario, there is an advantage of about $1,000 if you take a salary. In general, the Act aims to create indifference towards taking a salary or a dividend; however, each situation should be calculated. Apart from taxes, are there other considerations when deciding to pay a salary vs. a dividend? Yes, there are many significant circumstances and future outcomes to consider when paying a salary vs. a dividend. For example, eligibility for the CPP. Call us, we can help to ensure that you make the correct decision. © - Jacob Rawski, 2015 |
||
Head office:Elm Business Park, Building #1,201-9488-51 Avenue, Edmonton, Alberta, T6E 5A6 |
Telephone: 780-761-1115info@rawski.ca |