Optimal split in Salary-Dividend

- Bonuses could be accrued to reduce corporate income to the small business deduction limit (the federal limit is $500,000).

- Accrued bonuses must be paid within 180 days after the corporation’s year end.

- Pay yourself sufficient salary or bonus to create enough earned income to entitle you to the maximum RRSP deduction next year.

- Pay yourself sufficient salary or bonus to eliminate or reduce a personal minimum tax liability.

- Payment of salary or bonus may increase provincial payroll tax.

- The eligible dividend rules may create a tax deferral advantage when retaining income above the small business limit in the corporation.

- If you anticipate that the cumulative net investment loss (CNIL) rules will affect your ability to claim your remaining capital gains exemption, pay yourself dividends rather than salary.

- Dividends, to the extent that the company has a balance in the capital dividend account, can be received tax free.

- If the company has refundable tax available, pay yourself taxable dividends. The incremental tax related to a dividend payment is small, if any, because the dividend refund rate to the corporation is 33.3% of the dividend paid.

- Return paid-up capital, or pay down shareholder advances, as an alternative to paying taxable dividends or salary.

Consider employing your spouse or partner and/or your children to take advantage of income-splitting opportunities. Their salaries must be reasonable for the work they perform.

Amit Puri -

CPA & CA from Institute of Chartered Accountants of Ontario (ICAO)