1. Shareholder Agreements
Minimizes and prevents problems between shareholders that may arise due to unforeseen events. Can help address what happens if a shareholder wants to sell their shares and leave the business, or how the shares are dealt with on death or disability.
2. Salary vs. Dividends
Salary is deductible to the corporation, and fully taxable to the recipient. When paying salary, you must make CPP contributions twice – for the corporation, and the recipient. You gain RRSP room equal to 18% of the previous year’s salary. Dividends aren’t deductible to the corporation, do not require CPP contributions, do not generate RRSP room, and are taxed lower than salary.
3. Passive Income Taxation
Investments in a corporation generate passive investment income, which is taxed differently from the business’s income from operations. Passive corporate income is also taxed differently than investments held personally. If a portfolio is not designed properly, it can lead to more tax being paid than would otherwise be necessary.
4. Notional Accounts
CDA, ERDTOH, NERDTOH, GRIP – these accounts track various amounts inside the corporation that impact corporate and personal taxes. They are not accounts held at a bank or financial institution, they are tracked on paper and calculated when preparing your corporate tax return.
5. Small Business Deduction
Active business income under $500k is taxed at 11% in BC. Income over this threshold is taxed at the general rate of 27% in BC. This is called the small business limit. Canadian corporations with net passive income over $50,000 or taxable capital over $10,000,000 have their small business limit reduced or eliminated.
6. Corporate-owned Life Insurance
Since active business income is usually taxed lower than personal income, corporations can pay insurance premiums death benefit provides a credit to the capital dividend 6account, which can then be paid to the estate tax free. with cheaper after-tax dollars than a shareholder can. The
7. Tax on Split-Income (TOSI)
Rules that reduce or eliminate the ability to split income with non-arm’s length shareholders, like spouses or children. Income paid to these parties is taxed at the highest personal marginal tax rate. Can be avoided in specific situations.
8. Estate Freezes
Can be used to introduce new shareholders including children, spouses, or family trusts. Can allow for future growth of the company to attribute to the next generation without relinquishing control of the company.
9. Lifetime Capital Gains Exemption
Allows a reduction in tax payable on the shares of qualified small business shares. For 2022, the amount is $913,630, meaning capital gains up to this amount are exempt from tax. To be eligible, a company must meet certain tests and criteria. With planning, the exemption can be multiplied across family members using a family trust.
10. Secondary Wills
Probate in BC is usually required when a third-party like a bank or financial institution holds assets of the deceased. If probate is required, then all the deceased’s assets must be listed on the probate application. However in BC, multiple wills can be used to separate assets not held by a third-party like art, jewelry, or shares of a small business. This means probate fees – currently 1.4% in BC – can be avoided on those assets.