Tax Planning

This page contains the posts that I have written about tax basics and tax planning.

Income Splitting

Tax On Split Income (TOSI) Tax Rules For Corporations

family business income splitting

In 2018, the Minister of Fairness spanked CCPCs for income sprinkling.

There are still times where CCPC owners may still be able to us dividends to income-split with family members.

There are complicated rules. Get the bottom line.

Income Splitting Strategies For Canadians

income sprinkling

Spreading out income between family members can drastically reduce your tax bill and mean more money for your family.

There are short-term, intermediate-term, and long-term approaches to doing this. Even after the recent attack on income-splitting.

You May Want To Be Sleeping With Your Billing Agent

hiring spouse

Hiring a family member and paying them a fair wage is a great way to income split.

Not only do you decrease money going to the tax collector. You play less to outside agents. No one will care whether you get the maximum billable amounts more than you and your spouse.

Optimal Corporate Income-Splitting Strategies

salary dividend splitting

Paying a spouse a salary is a great way to income split. However, it is limited to market rates.

Dividends help to keep a corporation tax efficient and are not limited by market rates. However, there are other rules to deter you from using them to income split. If you qualify for an exception, then it is a boon.

Learn about the factors to balance in choosing an optimal salary and dividend mix to income split using your corporation. It is like learning to ride a bike. Built for two.

Income Splitting & The Attribution Rules

income splitting

As you build a larger portfolio, the income tax burden will also increase. One longer-term income-splitting strategy is to have the tax-exposed income attributed to a spouse in a lower tax bracket.

There are attribution rules to prevent us from simply gifting or loaning money to do that. Learn how they work – and how you can build your lower-income spouse’s hoard legitimately.

How To Squish The Tax-Person Using Your Home To Income Split

smith maneuver

Using home equity to invest is leveraged investing. You use a mortgage or HELOC (debt) to invest and make money.

That has potential risks and benefits. Done properly, you could use the debt to not only invest but also to reduce taxes. That can help shift the risk-benefit equation.

How We Income-Split Using Home Equity For Leveraged Investing

smith maneuver

One way to income-split is to help the lower-income spouse build a personal after-tax investment account. It can spin off passive income attributed and taxed to them.

Setting it up properly is critical.

That usually requires excess cash. In this post, I share how we used our home equity to invest and income split.

Spousal RRSPs For Income Splitting: From Diapers To Diapers

spousal rrsp parental leave

Learn how a spousal RRSP works. More than just tax-deferral.

A spousal RRSP can also reduce tax, if you have a lower-income spouse.

Avoid getting caught in the attribution rules and other hazards.

Learn different ways a spousal RRSP could be used for income splitting at different life stages. From parental leaves to pension-splitting.

Play The Banker With A Spousal Loan

income splitting

If a high-income professional has excess after-tax money, then they may want to play banker to their spouse to income split.

A spousal loan can help the low-income spouse grow a passive income stream. However, it must be set up properly to avoid the attribution rules. Learn how.

A Spousal Loan From A High-Income Employee

high income employee

Meet the Jones’. A high-income professor and low-income writer.

How can a spousal loan help them towards their dreams of early retirement and adventure? How is that impacted as the CRA prescribed interest rate rises?

A Spousal Loan From An Incorporated High-Income Professional.

spousal loan

An incorporated professional may need to take money from their corporation if they want to make a spousal loan.

How does that impact the efficacy of this income-splitting strategy?

Comprehensive Income Splitting Strategies (Video)

income split canada

Income-splitting strategies aim to reduce the overall household tax bill by spreading out taxable income.

There are multiple ways that any Canadian can do that. However, the benefits are greatest for high-income households. They can mesh those strategies with other strategies available to incorporated business owners.

Join Dr. Zhou of Breaking Bad Debt and myself to learn how a household can save thousands of dollars per year through a comprehensive income-splitting plan.

CCPC or Professional Corporation Taxation

Income Smoothing Using A Corporation To Reduce Taxes

small business tax

You are bound to have fluctuations in your income. Both over your long-term career and life cycle, but also year to year. Your consumption and the income required to support it will also fluctuate.

Learn how income smoothing using a corporation can minimize your taxes. That means more money for you to spend now or invest for the future.

Corporate Account Types: Know Where The Money Is

professional corporation account

A corporation allows us to regulate money flow, like a giant dam. That could reduce taxes by releasing income smoothly. You can also allow money to pool in the reservoir.

There are different accounts that you can use to efficiently manage corporate cash flow. Some of those are real accounts with real money. Others are notional accounts tracked on paper. Learn where the money is to turn notional money into real money. And to manage that real money well.

Dividends To Maximize Your Corporate & Personal Cash Flow

Now that you know where the money is, you must learn how to balance releasing it using dividends against the personal tax on dividends.

In this post, learn about when and how to pay yourself dividends tax efficiently from your corporation. Getting the right mix of dividends can increase your investible money.

Prioritize that to minimize how much of your buying power is nibbled away by the inflation-monster. Take advantage of opportunities to shift corporate money to invest personally without losing tax deferral.

How To Pay Salary vs Dividends From Your Corporation (Video)

You have to move the money out of your corporation and pay personal taxes to use it. Learn more about how to optimally do that using a combination of salary and dividends. The optimal mix will also change as your corporate investments grow. Learn why to ask the right questions and provide the right information to get the best out of your accountant.

Strategies To Withdraw Big Chunks of Money From Your Corporation Tax Efficiently

corporation tax strategy

For large withdrawals from your corporation, plan in advance to minimize the tax hit.

That means more money for you to pay off debt, buy a house, max out your RRSP/TFSA, or whatever big splurge you have planned.

Learn about six different ways to access your cash without getting crushed by a big tax boulder trap.

Investment Taxation In A Corporation

corporation investing

If you have retained earnings in your corporation, you can invest them to grow. That is the tax deferral advantage of a corporation.

How well that works depends on the type of investment income it produces and how well you flow money out of your corporation.

Learn about how corporate investment taxation works to keep the tax skeeters out of your corporate reservoir.

What Counts As Passive Income For Corporations: Devils In The Details

Too much passive income in a CCPC can increase its tax rate.

Learn about what counts and what doesn’t.

Make sure that you are using all of the deductions available to you.

Will The Active-Passive Tax Rules Destroy the CCPC Enterprise?

These tax changes are meant to further discourage incorporated professionals and other high-income professionals from using a CCPC as a tax-deferral vehicle.

What impact will that have on the tax-deferral power of private corporations?

Impact of the Passive Income Tax Rules For Corporations As A Retirement Vehicle

The active-passive tax increase on Canadian small businesses has a variable impact.

It depends on your income, savings rate, and spending.

Check out the effects on three different model high-income households.

With The Passive Income Corporate Tax Changes: Is It Bad To Be Good?

Corporation Tax Savings
Modified from Grease, 1978, RSO Records.

The tax changes were aimed to target high-income professionals.

Could a moderate-income professional get caught in them too, if they are good. They work hard, live within their means, and save for the future.

Will Dr. Sandra D. be punished for their savings rate?

Limbo With The New Active-Passive Income Rules For Corporations

A combination of too much active and too much passive income in a corporation could result in a bump in corporate tax rate.

A high level approach is a basic dance to lower corporate active and passive income to limbo under the threshold.

Financial Tools & Strategies For Incorporated Professionals To Repel Tax Pirates

Canada tax increase

An overview of eight different strategies we can use if we find our corporate ship drifting into tax-pirate infested waters.

Learn the basics of how they work.

Don’t just trade some tax savings for increased fees and complexity.

Explaining The Refundable Dividend Tax On Hand (RDTOH)

There are a number of tax rules to discourage using corporations for generating passive investment income. One of those is the RDTOH.

There were more changes in 2019 to make it even more awkward and complicated.

Like a Klingon mating ritual.

Corporation GRIP As A Tax Slashing Weapon

CCPC GRIP account

If you receive eligible dividend income from investing in Canadian equities, it generates GRIP in your corporation.

That can be used to give tax-favoured eligible dividends.

This has the potential for very tax-efficient money flow through a corporation. Or you could cut yourself.

Can You Benefit From The Loosened GRIP On Corp Passive Income Tax

Warning: Devilishly Advanced Content.

Implementation of the active-passive income tax was meant to penalize those with high corporate incomes.

They broke tax integration in Ontario & New Brunswick that could translate to a 2% to 6.66% net tax savings for a small group of big earners/investors/spenders.

Corporate Tax Calculator & Compensation Planner

corporate tax calculator

There is an embedded video and also a written explanation of how to use my CCPC Income Dispenser. It is a corporate and personal tax calculator to help you get a sense of an optimal corporate compensation plan for your situation.

You enter your goal after-tax personal spending, investing plan (RRSP/TFSA/RESP), and income. It then spits out a compensation plan including taxes and cash flow. That could serve as a good starting point for further discussion and planning with your accountant. 

Investment Taxation

Investment Income & Taxation: Intelligent Design or Jurassic Park?

investment tax planning

In order to tax plan for your investments, you must understand how they are taxed.

You should also know why they are taxed that way. The stronger the rational, the more resilient those tax rules should be to political diddling. Are you tax planning based on solid assumptions of how investment income is taxed?

Investing Using A Corporation vs RRSP vs TFSA Simulator

incorporation retirement investing

Some advise to only pay dividends from a corporation and keep all investments in the corp.

Others advise to pay salary and use an RRSP plus the corp. Some even suggest a combination to use a corp, RRSP, and TFSA.

There are a number of variables that lead to this advice and they change as our corporation grows. This simulator compares these different strategies over time.

Capital Gains Harvesting

Capital Gains Harvesting From A Personal Taxable Account

Unrealized capital gains are a form of tax deferral. So, it is generally recommended to avoid realizing them before you must.

However, whether tax-deferral means more after-tax money in your hands depends on your current and future tax rate.

If the capital gains tax rises or your personal tax rate in the future is set to rise, then harvesting gains at a lower tax rate makes sense. How likely are your tax rates to rise?

Time For Capital Gains Harvesting From Your Corporation?

capital gains harvest

Generally, it is a good idea to defer realizing capital gains because that defers taxes. However, in a corporation, if you are sitting on large capital gains, it can sometimes makes sense to harvest them.

A capital gains harvest could be a tax efficient way to move money out of your corporation to fund a personal expense, top up your TFSA or RRSP, or invest via a personal account.

Giving Tax Efficiently

How to Donate To Charity Tax Efficiently

donation tax savings

By learning how to give tax efficiently, you have more money to donate and expand your reach. You may even be able to save on your personal taxes as well.

Sometimes it is best to give personally and other times through your business. Be a good financial steward and deliberately plan your giving efficiently to support the causes that matter to you. If not, the Government will get the money and they will decide.

Pension Options

Pension Basics For Self-Employed Professionals & Business Owners

medicus pension

Unfortunately, pension envy is leveraged by companies selling pension products. Products have benefits, but they come with costs and trade-offs.

Self-employed Canadians actually have multiple options to plan for their retirement. Including pension products.

Learn the basics of how pensions work and the options available to self-employed business owners. 

Is CPP A Pension Or A Tax For The Self-Employed?

cpp self-employed

One of the arguments used against paying salary from a corporation is that you have to pay into CPP. Both the employer and employee contribution.

Is that a tax and something to avoid, if possible? Or is it a defined benefit, inflation-indexed pension to be coveted?

Spoiler: It can be either.

Is CPP A Good Investment For The Self-Employed?

Enhanced CPP ROI

If CPP is a pension in your case, the next question is whether it is a good investment or not.

Those who argue against paying salary and into CPP base that on the fact that it leaves less money in the corporation to invest.

How does CPP compare to other ways for you to invest?