Now is an ideal time to think about remuneration for 2015 as the deadline for filing T4’s and T5’s is fast approaching.  

Simon Salole, CPA, CA, LPA, at Millards Chartered Professional Accountants points out that “T5 and T4 slips for 2014 must be filed by the end of February” and suggests that there are more than a few considerations regarding remuneration for the current year that should be reviewed carefully.

“There are generally two ways to pay earnings out of a corporation. You can do it through salaries or you could choose to pay a dividend.” Salole says that the best choice factors in the applicable provincial tax rate and the amount of personal and corporate income. “Not surprisingly, the most important consideration may be whether you can afford to leave earnings in the corporation.”

Salole has put together a list of guidelines to follow in remunerating the owner of a Canadian Controlled Private Corporation earning active business income.

This list is a helpful guide and should serve as a review of key remuneration considerations. Of course we encourage our clients to contact their Millards representative if they have specific questions or challenges regarding remuneration.

2015 REMUNERATION GUIDELINES

1) There are generally two options for paying earnings out of a corporation – salaries and dividends.

The best method depends on the applicable provincial tax rates, quantity of personal and corporate income, and whether you can afford to leave earnings in the company.

2) Notification must be made to the shareholders when an “eligible dividend” is paid.

 3) Elect to pay out tax-free dividends from the “Capital Dividend Account”.

 4) Consider paying taxable dividends to obtain a refund from the “Refundable Dividend Tax on Hand” account.

5) Corporate earnings in excess of personal requirements could be left in the company to obtain a tax deferral (the tax is paid when cash is withdrawn from the company).

The effect on the “Qualified Small Business Corporation” status should be reviewed before selling the shares where large amounts of capital have accumulated.

6) Dividend income, as opposed to a salary, will reduce an individual’s cumulative net investment loss balance thereby possibly providing greater access to the capital gain exemption.

 7) Excessive personal income may reduce receipts and credits, such as Old Age Security, the age credit, child tax benefits, and HST credits.

It may be advantageous to defer receiving Old Age Security receipts (for up to 60 months) if it would otherwise be eroded due to high income levels (greater than $71,592 for 2014).

8) Salary payments require source deductions (such as CPP, EI and payroll taxes) to be remitted to CRA on a timely basis.

9) Individuals that wish to contribute to the CPP or a RRSP may require a salary to create “earned income”.

RRSP contribution room increases by 18% of the previous year’s “earned income” up to a yearly prescribed maximum ($24,270 for 2014; $24,930 for 2015).

10) Spouses may jointly elect to have up to 50% of certain pension income reported by the other spouse. 

 11) If you are providing services to a small number of clients through a corporation (which would otherwise be considered your employer), CRA could classify the Corporation as a Personal Service Business.  There are significant negative tax implications of such a classification.

Simon Salole’s practice areas include Personal and Corporate Tax Planning, Accounting and Auditing. He has a special interest in Agribusiness. Simon joined Millards in 2001 and was named a partner in 2009. Learn more about Simon here.