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Discussion Starter · #1 ·
I am owner, my wife is director
No active income, just passive, from stocks and ETFs
Still have some expenses with one of the cars which is owned by the corp

How can I get money out of the corp? Dividends?
My wife has a huge RRSP room and ideally I would like to pay her
 

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Discussion Starter · #3 ·
This is the second time I saw some reference to "the corp". What does that mean? Did you and your wife incorporate a investment holding company like Berkshire Hathaway?
no is a small business, canadian controlled private corporation that has money in its accounts but the business has been stopped for a while
 

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Discussion Starter · #5 ·
Well, I'm no lawyer or accountant. I was hoping someone else more knowledgeable would have posted before I did so I could learn a few things too.

But this is my take so if you find anything plausible, investigate it further.

I saw a youtube video explaining how the rich get paid without actually recieving income. They take out a loan from the bank using the business as collateral. Then the interest on the loan is deducted as a business expense and you get the income in the form of a bank loan. I think the corporation's passive income to pay back that bank loan would dictate how much you can borrow.
that means you have other assets in that business
you can't take a loan and use collateral a business that has a car as the only asset and money. They will say "You already have money"
if you mean personal loan then I do not see how you expense the interest paid
 

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My question back to any loan company asking that question would be what good would collateral be? But I'm not here to argue back and forth especially when I'm not a professional in this field.

I think this is the video in which I got that idea.


Start at 3:41 but be sure to view earlier to get the context.
I rather see these guys have a race to build hospitals, rather than rockets that barely enter space.
 

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Discussion Starter · #8 ·
yeah thanks for derailing my thread guys ...let's fix some billionaire problems instead
 

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I am in the exact same position and have talked extensively with my accountant about it. All retained money in my corp is fully invested and generates passive income. There is no active business income effective last summer. My accountant said I could justify a smallish say $20000 salary for me or my wife for corporate maintenance but paying myself $120000 per year now will not fly. I asked why, the gov't gets their tax. He said they wouldn't allow the wage expense deduction which would be deducted from the passive income and thus reduce corporate tax, or eliminate it.He said I might get away with it until I don't.
I have watched the above video or something close to it and found it ridiculous and not worth it in my opinion. The only way to get money out of your CCPC is to pay dividends to yourself and if your spouse is a shareholder, then she can get an equal dividend. I think you can each take out at least $50000 each in dividends and pay virtually no tax. I don't know alot about tax law but also the more dividends your CCPC investments generate, the higher your corp's GRIP and the more eligible dividends you can pay to yourself and spouse as these are taxed more favourably than non eligible dividends. This is all stuff your accountant who handles your corp return should be discussing with you. The corp also needs to declare the dividend before its paid and issue a T5 to the recipient the following Spring.
 

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I think you can each take out at least $50000 each in dividends and pay virtually no tax
I really don't see what limit there would be on paying out dividends from the corp. Can't you pay an arbitrarily large amount of money? Pay yourself a 500K dividend if you want. What is the complication here?
 

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I think the suggested 50k each , plus maybe some non corp income for each means perhaps 120-140k per year , and largely tax free, so how much more do you need to live on in a year.

The other side of this is blow it all out in a year, close the corp and pay the tax as non reg investments after the rrsp and tfsa contribution capacity is used up.

That path lets you shed the accountant and corporation maintenance fees. But the marginal income in that year likely brings you into alternative minimum tax territory. I have never explored that line on the tax return, but it has to exist for this sort of circumstance.
 

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I think the suggested 50k each , plus maybe some non corp income for each means perhaps 120-140k per year , and largely tax free, so how much more do you need to live on in a year.
(I'm not an accountant, so take this for what it is worth)

You mentioned your wife is a Director of the CCPC, but you did not mention whether she actively participated in the business. If not, make sure you are familiar with the Tax on Split Income (TOSI) requirements updated in 2018. Refer to - Tax on Split Income (TOSI) Rules - Maroof HS CPA Professional Corporation, Toronto for a high level overview (I found a better overview on another accounting firms webpage, but I can't seem to find it now.. ugh!). My understanding is that if your spouse was not actively engaged in the business, then she will be taxed at the highest personal rate. As others have mentioned, an accountant should be able to walk you through the best strategy. Just something to be aware of.
 

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Discussion Starter · #14 · (Edited)
My wife tells me that you can't pay dividends if you do not have active income.
I can always re-open the activity and try to do some work and yet go in read at the end of the year
I do have some online business ideas that would generate losses (not a lot) enough to justify paying salaries if I want to go down that route. The problem is that I will have to pay CPP twice and it will add on top of our full time salaries

Does anybody know if you can pay yourself dividends from passive income only?

Google tells me you can't pay dividends if you have losses
 

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My wife tells me that you can't pay dividends if you do not have active income.
Does anybody know if you can pay yourself dividends from passive income only?
I have never heard this.. In fact, here is an article from National Bank on dividends from a holding company in retirement. I'm not sure why an OpCo would be any different?

Drawing down your investments in a holding company after retirement: Understanding CDAs, GRIPs and RDTOHs | National Bank (nbc.ca)

Did your wife provide a source/rationale?
 

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Discussion Starter · #16 ·
Not really, that is why I am investigating
She has a background in Economics but no accounting experience here in Canada

I guess the key is somewhere here

What is a capital dividend?


A capital dividend, also called a return of capital, is a payment that a company makes to its investors that is drawn from its paid-in-capital or shareholders' equity. Regular dividends, by contrast, are paid from the company's earning
So I need to understand how to create a Capital Dividend Account and if this is something I can do.
 

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So I need to understand how to create a Capital Dividend Account and if this is something I can do.
A CDA isn't something to "do" or "create". If you had a CDA balance, you would know based on your corporate tax return.

Refer to - Capital Dividend Account = Tax Free Withdrawals! (thinkaccounting.ca)

Your accountant should be able to answer CDA questions (if you have a balance, etc). My understanding is that it is primarily for tax free withdrawals based on previous capital gains, but my accountant takes care of that for me at year end.
 

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Discussion Starter · #18 ·
I won't be asking here if I had an accountant. Someone is telling me I going to have to pay 5K to get it all sort it out. He he, they can wait 5000 years for that. I ditched my accountant after realizing my taxes were pretty basic and I followed the same procedure for good years without any issues. I know I know someone will say well if there was an error there will be catastrophic issues etc etc ... leave that to me to worry about it.
 

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Accounting firm rates vary wildly, as does their effectiveness. I've paid 3k/yr and as much as 9k/yr when the accounting firm became part of a larger one. Thing is, I did all the routine stuff and they just did year ends and taxes, so when it grew to 9k and I found myself dealing with assistants and only face to face with an accountant for my 1 appointment to review, I shopped for a new accountant and went back to about 3k (and that was about 15yrs back and went on for another 5). Now it's a holding corp and I spend about 2k/yr with a small independent accounting co. with 1 accountant and assistant. I make lots of investments in the corp, as well as some trades. We are payed divs. and the accountant also advises us on strategy to optimize withdrawal, CPP, OAS and taxes. They also take care of filing our personal taxes, doing T5's etc and although I pay a separate fee for that, I feel the integration and flow is a great value for our situation. Finding a decent accountant at a fair price is probably time and money well spent and will save you more than cost you imo. Btw, accounting fees are tax deductible, headache medication and stress not so much.
 

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Hey accountant here, I like to log in every now any then and give away some free advice.

1. The advice regarding the wage is correct, you cannot pay a wage unless justified and should be at market value.

2. Dividends are the primary way to deal with this. Passive or active income is irrelevant and not applicable.

3. Dividends can only be paid to shareholders. (being a director is not relevant)

4. Yes dividends must be paid to the same class of share equally generally. however different classes of shares can be treated differently.

5. someone mentioned GRIP This is actually relevant as it would permit Eligible dividends vs. Non-eligible dividends. and eligible dividends are More tax attractive.

6. 50,000 in dividends is optimal for tax per year. IE: 50K per year for 10 years will pay FAR FAR less in tax than 500K in one year.
(50K assumes zero other taxable income and is on eligible dividends, non-eligible is more like 29,000 in Ontario)

7. CDA is a capital dividend account. Let's say you earn capital gains on your investments. at present we all in canada pay 50% tax on capital gains. SO one could say we get the other 50% tax free, guess what this dosent change in a corporation. you can take the money out tax free via the CDA account. Dont screw this up as the penalty is 75% of the mistaken amount. IE you take 100K and the amount is really 10K. than the penalty is 75% of the 90k too much you took. FYI you cant just take it, there is specific paperwork to file in advance

8. RDTOH (refundable dividend tax on hand) you have likely been paying 50% tax on all your passive income, you can get 30% of the this back when paying out dividends. IE: i made one hundred dollars investing and paid fifty dollars in tax. 30 dollars of this is recoverable. (there are math percentages to apply, its not dollar for dollar)
This changed two years ago so you need to know the number pre-change and than the conversion post change and than how it is broken down going forward
IE: RDTOH no longer exists it is now ERDTOH & NERDTOH
NERDTOH ='s must pay non eligible dividends to recover the 30%, which is likely what you have earned since the rule change

depending on amounts, this could be many hours of work by a welled versed person to run various scenarios to determine the best meltdown stradegy depending on the numbers and how much money we are taking about, considering all the factors i have mentioned in addition to your long term position. IE: what do you earn now ? will you always earn this much ? what will your pension be like if you have one, or your spouses numbers as well.
Someone else mentioned TOSI. How old are you as TOSI dosent apply after 65. What will you do with the money ? is it best left in investments ? do you want it for personal reasons ?
Are we simply trying to meltdown the corp as tax efficient as possible ?
These are some of the questions a good accountant will have.

In summary if you have a few grand in your corp, than pay it out and close it. If you have a few hundred grand, than it is actually more about all the credits (Primarily RDTOH and CDA) than it is about the tax. Any accountant can request all these numbers from CRA or you can likely get them yourself. I would suggest that for 5k any corporate accountant can provide you a long term anaylisis included with the current year filing, and i would also suggest that 5K could be, just maybe a drop in the bucket of how much you will keep in your pocket if everything i have mentioned is not optimized.
Proceed as you wish, i really hope you get the message that it would be foolish to attempt this without professional advice. and please i honestly meant no offense by that but.. A fool and their money is soon parted. Sincerley Best of luck
 
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