Edmonton CPA | A Small Price To Pay For Education And Understanding
There are a couple of tricky situations pertaining to dividends and salary, says Edmonton CPA. One of the tricky situations is divorce and separation. In terms of separation, they will have potentially already had a separation agreement that can be based on line 150 of your income tax return or your notice of assessment.
150 will however be higher, even though the net payment to the shareholder would in fact be the same.
Likewise, childcare is only deductible from earned income. Although an owner might prefer to declare dividends. Once you consider the childcare implications, you can only deduct childcare from salary. You have to make that determination eventually, says Edmonton CPA. That might in fact be one of the factors that could tip the scales in terms of making a decision to pay dividends.
They can be and there can be the ability to have an income splitting situation for family members. So one owner for example might have income that is in fact not at all related to the business. Wherein, the other owner may just have that income in the business. Your charter professional accountant will have to determine not just if it’s salary and dividends. They will also have to figure out who that salary and dividends is going to go to from within the company
Also, says Edmonton CPA, the are potential Canada pension plan implications with this plan that could happen. So if you’re paying out salary, you do have to pay CPP. You will however be able to recover the employee portion of CPP when you file your personal taxes. However, if you have any extra pay and the employer portion of CPP, that amount will never come back to you, consider it efficiently and effectively lost.
There are very significant situations and structures in place for salary versus dividend within a small business. For example, it can be extremely significant and a very inefficient payment strategy if it’s not unusual for someone to come into the office and for us to find out that they are using and have been using an inefficient payment strategy. This is something that they may or have done themselves or may have paid for it but have not retained a proper qualified charter professional accountant. This inefficient payment strategy to the orders is costing them effectively 2 to 3 times what it costs for accounting services.
Sometimes business owners start out with trying to minimize fees. That is to be expected as they have just spent a lot of money, potentially the life savings in buying a small business and setting up that small business in order to open and make themselves money. They think that they have hire the cheapest person and they end up paying two or three times what they could’ve for a small business owner and gotten the proper advice from a charter professional accountant. It is a small price to pay for proper accounting.
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Edmonton CPA says that in terms of somebody being sued, or going through the legal process in some way shape or form, sometimes a different strategy can be a little bit more difficult to think about. So sometimes simplistic salary strategy is a little more easier when parties are in fact litigating. The circumstances can affect the decision for salary and dividends. Those are always and should very well be quantitative and qualitative.
Sometimes the family members Corporation will be associated for a small business in terms of accessing the preferred small business 12% tax rate. At least a 12% tax rate is in Alberta Canada. Sometimes the family members corporations are sharing the limit to that small business tax rate. If that in fact is the case and we are at risk of going over the small business threshold And that threshold is $500,000, we might want to declare salary to get us back down under. As a matter fact sometimes it’s just $5000 in and from one business, says. Sometimes of the total income from the Corporation in the family if they are in fact associated.
Consider the fact that if there is a family that in fact needs to remove because of a job transfer or other reasons of any kind. Moving expenses are in fact similar to the childcare issue where you have to have salary in order to detect those moving expenses. Sometimes, to have better dividends, you have to have moving expenses sometimes shifting the pendulum back to salary. The reason for this is because sometimes you need salary and your new location to deduct the moving expense.
Integration is where we are paying dividends in a very theoretical matter. There is a corporate tax component and a personal tax component because you can’t deduct the dividends from corporate income. However, Edmonton CPA wonders if there is going to be a loss to that corporation? Sometimes in fact there is no corporate tax component so the understanding gets lost in the process. The understanding of what those losses were are currently ongoing, and sometimes in the past that they can utilize moving forward. That will affect our decision to pay salary and dividends. The reason is because sometimes, if we have a loss, sometimes we can just pay the personal tax and avoid the corporate tax altogether
Be careful says Edmonton CPA as you can accrue certain punitive taxes as well if you are not careful. You can have incorporations called the personal service tax risk. This personal service task risk is assessed to business owners who are deemed to be an incorporated employee. When we have more personal service business risk, personally, service business risk is not absolute. It is in fact another pendulum, as referenced before. When you either have low risk or high-risk if you have a moderate or high-risk, we start to prefer salary income. No