Financial Planning For Canadian Business Owners

Today's the 5th part of a series on understanding financial statements.

Episode Highlights:

• 01:10: Different provinces have different amounts. Today, on top of that, anywhere from zero to 4%, depending on what province. One will actually apply that zero percent rate up to 600,000, but for all intents and purposes, the half $1,000,000 mark represents a small business's income. 
• 03:40: $500,000 is a business limit or exemption. So, for the first $500,000 you get to pay the lower rate, but if you have more than $50,000 investment income. They start taking back the amount they start, reducing the 500,000 at a rate of $5 for every $1 earned in passive income.
• 08:14: The first national account is the general rate income pool. You may realize that there are actually 2 different tax rates payable on dividends in Canada.
• 08:33: There are three depending on where they came from. The third one is that foreign dividends that are not considered eligible for dividend tax credits. So, they are basically taxed as income.
• 09:58: The general rate income pool is a calculation of the money that you pay tax on or the income that you pay tax on at the general rate. So, anything that wasn't the small business rate is the pool of money that you can distribute as an eligible dividend. 
• 11:53: Any insurance proceeds from the death of an individual above and beyond the adjusted cost basis are considered a game. They flow into the CDA. Why does the CDA matter? Because the CDA is an amount that the individual can draw tax-free from the corporation. 
• 19:05: RDTOH allows you to take money out at a tax preference because you've already paid some of the tax and get some tax refund.
• 21:19: Why does this number matter? This number matters if you have a corporate structure in place. If you have two corporations, one corporation owning another, and you want to transfer money between these corporations, you can transfer by way of intercorporate dividends.

3 Key Points:

1. In 2018, there is a tax change that happened that basically will change your tax rates corporately for passive income. Total passive income or what's known as aggregate investment income exceeds $50,000 and it will increase. You will pay an increase straight up until about $150,000, which will go back to normal.
2. Why would the government allow you to take money tax for you to be a corporation? Let's look at investment capital gains. Half of it is tax free, there is no real difference there. It's going to result in you paying the same tax that you would otherwise. So, if you take a capital gain and pay 100% of the proceeds out and you end up paying at most 26%, Insurance is different.
3. The purpose of RDTOH is to extract the corporation of the companies, the government, extracting more income from you corporately now than they would if you paid to yourself personally. If you pay it to yourself personally then they refund you the difference.

Tweetable Quotes:

• "The eligible dividend is basically the dividend paid after tax income that paid the general rate that paid the higher the two. So, if I pay a higher rate corporately, I pay a lower rate personally, if I pay a lower rate corporately, I pay a higher rate personally." – Jason
• "Insurance is different because the CDA is a mechanism for flowing out the gains tax-free to the shareholders." – Jason

Resources Mentioned:

Facebook – Jason's

LinkedIn – Jason's

Full Transcript