Several clients asked me to blog about the different ways of extracting money from their companies - Today I will only explain you one technique to take out cash from your business:
Let's take John, a consultant, incorporated under the name John Doe Inc. The company is making aobut 200k of net profit per year - the Corporation will then pay roughly about 17% of corporate tax (CCPC - Ontario, fiscal year 2010)- Hence the retained earning (money who can be distributed to shareholder(s) is about $166,000 (200k - 17%of taxes). Let's say that John is the sole shareholder of is corporation, John will then have 3 options - he will either take a salary, declare a dividend to himself, a mix of both or he will let a portion of the profit in it's company as retained earnings....
Let’s make it a little bit more complicated, John got married last year with Julie and they are planning to have a baby next year. Then Julie will stop working for 3-4 year to raise the kid.
Did you know that while staying home, Julie could receive up to $32,000 TAX FREE…
How is that possible? Well, trough a series of legal and accountant transactions (namely an estate freeze - S.86 Income Tax Act) Julie would then acquire shares in John’s company and John would be able to issue her a dividend … The first $32,000 would be non-taxable for Julie if she qualify under the different conditions of the Act - (email me to know more about these conditions...)
The important part to know is that If an individual does not have any other source of revenues, a shareholder can receive up to $32,000 Tax Free.
As usual, I strongly suggest you consult your own professional advisor before proceeding with an estate freeze.Too good to be true ?? Contact me and I will explain how we can change your corporate structure to ensure that you save taxes!!
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