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Discussion Starter · #21 ·
no is a small busines
so these are non-eligible dividends
my wife is director and shareholder of course
She might get to use the corp later for some IT activities and online business we will hire an accountant if that is required but like somebody above mentioned we are doing the book keeping and everything and the accountant we had was just reporting and signing our papers. 2h of work in total every year

If would be foolish to pay 5K per year to do the accounting for 6K passive investment income (reinvested actually)
We just started investing and the corp was dormant for 2Y and we are in our first year of investment

This was a small corp set to shelter the income from my IT contracting work
The accountant I had had a very simple task and he was charging me 1K when I got pissed off because I found out about the quick GST method which would have saved me some money but he failed to inform me about it,
I did my taxes for years with Intuit TurboTax for Business and it was pretty much the same but I was paying 700 less.
If you have a large business with lots of expenses and transactions and then very few expenses do you thing you need a 5K accountant for this ? I doubt.
 

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so these are non-eligible dividends
my wife is director and shareholder of course
She might get to use the corp later for some IT activities and online business we will hire an accountant if that is required but like somebody above mentioned we are doing the book keeping and everything and the accountant we had was just reporting and signing our papers. 2h of work in total every year

If would be foolish to pay 5K per year to do the accounting for 6K passive investment income (reinvested actually)
We just started investing and the corp was dormant for 2Y and we are in our first year of investment

This was a small corp set to shelter the income from my IT contracting work
The accountant I had had a very simple task and he was charging me 1K when I got pissed off because I found out about the quick GST method which would have saved me some money but he failed to inform me about it,
I did my taxes for years with Intuit TurboTax for Business and it was pretty much the same but I was paying 700 less.
If you have a large business with lots of expenses and transactions and then very few expenses do you thing you need a 5K accountant for this ? I doubt.
There are many good accountants at varied rates, shop it around. unfortuanately 1,000 is at the low end for corporate filings. as soon as you say corp everything goes up in price.
The reality is a more in depth conversation is required to provide sound advice. It's as much about the future as it is the present. Do you even need a corp ? that determination should be made. if you made 6K in passive. I will guess you have around 125K in investments. simple advice would be, Look at the personal federal tax brackets and pay yourselves dividends to the tax bracket you desire. your wife can still buy rsp's to offset this. I'm not saying its the best advice, i'm just saying its simple if 125K is in the ballpark

PS yeah many accountants forget about the quick method as it is not used frequently, but definitely should be reviewed for IT contracts, usually the hardware costs negate the quick method, but yes if you are entirely service based than the quick method is usually better for your industry
 

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Discussion Starter · #23 ·
There are many good accountants at varied rates, shop it around. unfortuanately 1,000 is at the low end for corporate filings. as soon as you say corp everything goes up in price.
The reality is a more in depth conversation is required to provide sound advice. It's as much about the future as it is the present. Do you even need a corp ? that determination should be made. if you made 6K in passive. I will guess you have around 125K in investments. simple advice would be, Look at the personal federal tax brackets and pay yourselves dividends to the tax bracket you desire. your wife can still buy rsp's to offset this. I'm not saying its the best advice, i'm just saying its simple if 125K is in the ballpark

PS yeah many accountants forget about the quick method as it is not used frequently, but definitely should be reviewed for IT contracts, usually the hardware costs negate the quick method, but yes if you are entirely service based than the quick method is usually better for your industry
That is the plan to pay her dividends (I do not need as I am already in a higher tax bracket) and then she will put that entirely in RRSP. So the matter is really simple I do not need to pay 5K for this, I see now you agree with me.
We just need to learn how to report this income for a few years till we get the money out of there. We have no plans to sell the stocks soon, we could leave it there till we retire so the income will be minimum, we do not need these money for anything it is just that I would rather put them in a self directed RRSP and invest it there, I don't think it makes much sense to keep investments there ...I will read more I am not entirely sure
 

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Received dividends can be put into RSPs if there is existing contribution room already generated by earned income. Dividends by themselves don't generate RSP contribution room as an added note.
 

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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
Thank you for your post. I wasn't sure if the more I wrote about what I know about CCPCsthe more I would sound like I'm blowing smoke. What I do know about taxation and CCPCs just comes from 30 years of casual conversation with my accountant but I don't have the knowledge (or will) to try and manage it on my own. I find the $3500 per year well spent. The CDA is something I just learned about last fall as I liquidated all investments in the corp in a move to a different investment firm. This coming fall, after my year end, with the proper tax and legal filings, I should be able to get a good nice chunk out of the corp to myself with no tax to me personally. But the corp will have a hefty capital gains tax bill.
 

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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?
No complication. I was merely stating an approximate upper limit to the amount a shareholder can receive relatively tax free if there is no other income. I could take out everything in one massive dividend and pay the tax but that would make no sense except to simplify things going forward by not having that extra entity.
 

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No complication. I was merely stating an approximate upper limit to the amount a shareholder can receive relatively tax free if there is no other income. I could take out everything in one massive dividend and pay the tax but that would make no sense except to simplify things going forward by not having that extra entity.
Ok that's what I thought.

Yeah the money is never "stuck" inside the corporation. People can always take dividends.

The rest comes down to your personal tax planning, like spreading the payments out over multiple years, etc.
 

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I have no idea as to exactly how the reporting is done on the corp return as that is expertise of my accountant that I pay for. But I do know that every single dividend, distribution, interest payment, capital gain/loss for every single security has to be added up, categorized and reported, whether it's reinvested or not. Even when there was active income in my CCPC, tracking the investment portfolio part took up the bulk of the time and resources.I think there is a lot to gain by doing it correctly and a lot to lose if it isn't.
 

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I see lines for Dividend income, Interest income, realized gains/losses investments, foreign exch gain/loss, realized gain/loss assets. There's federal and provincial filings too. I much prefer the accountant doing it vs myself. Might be easier to just collapse your corp if you just want DIY ?
 

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Discussion Starter · #31 ·
I see lines for Dividend income, Interest income, realized gains/losses investments, foreign exch gain/loss, realized gain/loss assets. There's federal and provincial filings too. I much prefer the accountant doing it vs myself. Might be easier to just collapse your corp if you just want DIY ?
yeah there is lines for that ..I wonder if TurboTax for business will be enough for that
I used that for a few good years when I was on working on contract and I never had an issue
Right now I have no reasons to use it anymore since the income is very small as mentioned
 

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I used that for a few good years when I was on working on contract and I never had an issue
Right now I have no reasons to use it anymore since the income is very small as mentioned
I work with various friends who have small businesses similar to my own. Two guys went the corporation route, but I've been doing the T2125 self employment (sole proprietorship) filing.

For anyone reading this thread, unless you have a good reason to form a corporation, I would strongly consider the personal T2125. I still have complexity but it's nothing like what my friends with the corporation are facing. In fact I can do most of my taxes with cheap or free tax software, though I do have a CPA advise me and review my work.

There is still the ability to claim expenses, amortize capital expenses, and claim business use at home, but it's all streamlined in a rather simple process. Plus there's no need for business/corporate accounts with any of this.

The other thing I like about the T2125 approach is that the overhead to manage this drops to nil if your business goes "dormant". Basically no start-up or shut-down costs or hassles. Perhaps not as tax efficient, but very easy to deal with and less time (less cost) for professional help and administration.
 

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For anyone reading this thread, unless you have a good reason to form a corporation, I would strongly consider the personal T2125. I still have complexity but it's nothing like what my friends with the corporation are facing. In fact I can do most of my taxes with cheap or free tax software, though I do have a CPA advise me and review my work.
2 main reasons to form a corp, first is limiting your personal liability. The second is the underlying theme of this thread, leaving money in your corp to take out over time. If you don't need all the money you earn each year, incorporating can help spread the money you take out over time making it more tax efficient.
 

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2 main reasons to form a corp, first is limiting your personal liability.
It doesn't restrict your liability much. If you are the sole person behind a corporation, you still get sued as it's clear who the responsible party is. There isn't a magical shield around a person just because they're using a corporate entity.
 
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