Several clients asked me to blog about the different ways of extracting money from your company - Today I will only explain you one technique to take out cash from your company:
Let's take John, a consultant, incorporated under the name John Doe Inc. The company is making 200k of net profit per year - the Corporation will then pay roughly about 16% of corporate tax (CCPC - Ontario, fiscal year 2010). John is the sole shareholder of is corporation, 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 is 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. Further, Julie will stop working for 3-4 year to raise the kid. Did you know that while staying home, Julie could receive up to $35,000 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 would then be able to issue a dividend to her… the Company would pay 16% of Corporate tax and Julie would be receive a dividend from the Corporation. The first $35,000 would be non-taxable for Julie if she has not other revenue(email me to know more about these conditions...)
The important part to know if that If an individual does not have any other source of revenues, this shareholder can receive up to $35,000 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!!
