Paying Yourself in 2013
Issue 21 – January 2013 Welcome to 2013 and Happy New Year. A big part of business success is managing your finances to maximize profits and reduce taxes. That’s what I’ll be covering in this issue and upcoming newsletters.The beginning of the year also starts the countdown for submitting your personal 2012 income tax returns. For a recap of 2012 year end tax planning see our December newsletter. For personal or business tax planning, please call me at 506-657-4067 or 1-800-650-4067. As a favour to a friend or business colleague, feel free to forward this email to those who you think could benefit from the information below. Donna Mazerolle www.DonnaMazerolle.com =================================================
Some general guidelines to follow in remunerating the owner of a Canadian-controlled private corporation include:
- Bonusing down active business earnings in excess of the annual business limit may reduce the overall tax. However, leaving corporate active business income over this amount presents a tax deferral.Professional advice is needed in this area.
- Notification must be made to the shareholders when an “eligible” dividend is paid – usually in the form of a letter dated on the date of the dividend declaration. If all shareholders are directors, the notification may be made in the Directors’ Minutes.Please contact us for advice before paying an eligible or ineligible dividend.
- Elect to pay out tax-free “capital dividend account” dividends.
- Consider paying dividends to obtain a refund of “refundable dividend tax on hand”.
- Corporate earnings in excess of personal requirements could be left in the company to obtain a tax deferral. The effect on the “Qualified Small Business Corporation” status should be reviewed before selling the shares.
- Dividend income, as opposed to salaries, will reduce an individual’s cumulative net investment loss balance thereby providing greater access to the capital gain exemption.
- Excessive personal income affects receipts subject to clawbacks, such as old age security, the age credit, child tax benefits, and GST credits.
- Salary payments require source deductions to be remitted to the Canada Revenue Agency on a timely basis.
- Individuals that wish to contribute to the Canada Pension Plan or a Registered Retirement Savings Plan may require a salary to create “earned income”.
- Salaries paid to family members must be reasonable.
Personal Tax Returns
CHILD CARE EXPENSES – NANNY COSTS In a June 13, 2012 Technical Interpretation, CRA notes that specific Nanny costs such as transportation to travel from the caregiver’s country of permanent residence to the location of work in Canada, interim medical insurance coverage, and Ontario’s Workplace Safety and Insurance Board (WSIB) employer premiums under the Ontario Live-in Caregiver Program may be eligible CCEs. The Ontario WSIB identifies that: “a private householder who employs a domestic worker for more than 24 hours a week must register as an employer of domestic workers with the WSIB…” This category includes employment of domestic workers such as babysitters, nannies and nursemaids. =================================================
CANADA PENSION PLAN (CPP) Under new CPP rules, individuals that start receiving their CPP before age 65 (as early as age 60) will suffer a greater penalty but, will have increased benefits if they defer past age 65 (as late as age 70). For example, if an individual started receiving CPP payments early, previously the penalty was 0.5% per month or 6% per annum. If a person started five years early at age 60, he/she would suffer a 30% penalty. This 0.5% per month penalty has been increased to 0.6% to be phased in up to the year 2016. The benefit for deferring a receipt of CPP payments past 65 is proposed to increase from 0.5% to 0.7% per month and is phased in by 2013. Therefore, if he/she commenced to receive this at age 60, the amounts that would be received would be 36% less (60 months x .6%). If they waited until age 70, they would receive 42% more (60 months x .7%). =================================================
Donna Mazerolle & Associates provides:
- Strategic Planning
- Business Plans
- Accounting and Bookkeeping
- Growth Strategies
- Budgeting and Forecasting
- Growth Management Strategies
- Turnaround Strategies and Management
- Help with Sourcing Funds
================================================= The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional. Although every reasonable effort has been made to ensure the accuracy of the information contained in this newsletter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents. Do you have questions… give us a call at 506-657-4067 or 1-800-650-4067 (outside Saint John).