Corporations in Canada - dont you end up paying double tax?

[Myst]

Ok im confused
Everyone says to make a corporation or the govt will take you to the cleaners. But when the money is in the corporation, what good is it? You cant really spend the money on yourself unless you give yourself a salary.. and when you give yourself a salary, you have to pay taxes on that

So do you really pay like 25% (or whatever it is) when they money comes into the corporation, then regular income taxes if you take the money out into your account??

[Myst]

bump bump

[minusonebit]

Well, you dont HAVE to pay taxes...

I think this is the reason most larger businesses setup their corps in tax haven places, places where there is no corporate income tax, and then yes, they do get taxed on thier income when they take their draw...

[rowan]

I am not an accountant and I'm not in Canada, but I think you'll probably find that salaries are deductions, IOW you only pay the company tax rate on profits. The portion of the companies gross income that goes to salaries is only taxed as personal income tax.

[SilentKnight]

Yes, you're taxed on any personal salary you draw from the corporation, which is why you try and take advantage of as many legal (and often lesser-known) tax write-offs as humanly possible.

For example, under Canadian tax laws, every corporation is permitted one annual "corporate retreat" as a write-off as well. Meaning you can take a 'vacation trip' and chalk it up to corporate expense. If you spend a few $k on the trip, it helps offset personal income tax.

There's also shareholder loans which can serve as a good tax shelter.

Having a father-in-law who's also a very knowledgeable chartered accountant is handy, too (hehe).

[Myst]

So if someone has $300,000 in a company for 2-3 years (already paid the 21% taxes), then that money goes to his personal account .. how much taxes does he pay??

[JFK]

Originally Posted by Myst

So if someone has $300,000 in a company for 2-3 years (already paid the 21% taxes), then that money goes to his personal account .. how much taxes does he pay??

try asking an accountant

[rowan]

Originally Posted by Myst

So if someone has $300,000 in a company for 2-3 years (already paid the 21% taxes), then that money goes to his personal account .. how much taxes does he pay??

As JFK says ask an accountant, but my guess would be that the transfer to the personal account (your salary) would be taxed as personal income, and that same amount is deductable on your next company tax return. This is effectively the same as crediting the company tax you've already paid.

So if your company makes $0 that financial year
you get your $63k refunded
you owe $300k x personal tax rate

[xApster]

Originally Posted by Myst

Ok im confused
Everyone says to make a corporation or the govt will take you to the cleaners. But when the money is in the corporation, what good is it? You cant really spend the money on yourself unless you give yourself a salary.. and when you give yourself a salary, you have to pay taxes on that

So do you really pay like 25% (or whatever it is) when they money comes into the corporation, then regular income taxes if you take the money out into your account??

You only pay company taxes on your profits and your salary is considered a "write off" ...

[Jay_StandAhead]

Originally Posted by Myst

So if someone has $300,000 in a company for 2-3 years (already paid the 21% taxes), then that money goes to his personal account .. how much taxes does he pay??

that money would be dividends, and dividends are taxed similarly to regular salary income

The best way to save taxes in Canada on income of $100k/yr is this:

- Don't take a salary
- All the money goes to your corporation, which is then taxed at 17-19% depending on your province (up to $400k profit/yr)
- take dividends from your company (if you only have dividend income in the year, the first $40k you draw is tax free)

if you happen to be partner with your wife in the business and she can legitimately own 50% of the shares, you could each draw $40k tax free per year (your corporation will have paid taxes on its profit prior to remitting dividends, but on the personal tax level it would be tax free)

Talk to an accountant, there are many ways of reducing taxes.

[Myst]

my accountant is a moron

[V_RocKs]

Your corporation brings in $1,000,000. It pays you $300,000. Then it buys an apartment complex with the remaining $700,000. Now it gets income from the rent and reinvests that into more complexes. Now it is paying taxes on the rents it receives. Then it invests that remaining money into more complexes.

Had you bought the apartments you would have owed taxes on that $700,000. You pay taxes first, then spend on apartments. Your corp buys apartments and then pays taxes after on what is left.

[V_RocKs]

Your corporation brings in $1,000,000. It pays you $300,000. Then it buys an apartment complex with the remaining $700,000. Now it gets income from the rent and reinvests that into more complexes. Now it is paying taxes on the rents it receives. Then it invests that remaining money into more complexes.

Had you bought the apartments you would have owed taxes on that $700,000. You pay taxes first, then spend on apartments. Your corp buys apartments and then pays taxes after on what is left.

[Myst]

Thanks all

[Kiopa_Matt]

I'm guessing you were talking about double taxes on CPP and EI? In that case, yep, if you pay yourself out a salary you end up paying double (actually, more than double on EI). You have to pay both, the employee and employer shares of it. CPP is 1:1 and EI is 1:1.6 (I think).

Stick with the dividend advice. There's also tax breaks if your company makes less than, I think it's $250K. Ask your accountant about that one though.

[RawAlex]

let me add some stuff here.

First off, one of the best things about a corporation is that it can be a buffer between you and higher tax rates. if you bring in, say, $200k a year, your personal tax rate might run 35-50% on that. Corporately, you would be looking at a much lower rate, probably about 15%-18%. If you have money, you can make money. If the government has it, you make fuck all.

Second, your salary is an expense to the company. Every dollar of salary you take is a dollar less taxable income for the company. So you can take some salary yourself, but not enough to make your taxes go crazy, while at the same time lowering the net of the company.

Second thing is that if you are incorporated, you can pay dividends. Dividends are taxed personally at a much lower rate than regular income, and there is a level (don't remember the number it moves) that is tax free entirely.

If you have taken the step to incorporate, get a good accountant and they will save you thousands of dollars in taxes.

[WiredGuy]

Thats not double taxation. When you take a salary from the corp to yourself, thats a deduction for the corporation.

Example: Corp makes $300k in profit before you take a salary. You take $100k salary. The corp is only going to pay taxes on the $200k and you pay personal taxes on the $100k.

The $100k will be subject to the highest tax bracket since its personal income, but the $200k will be subject to nearly half as much taxes since its a corp.
WG

[Pipecrew]

Originally Posted by Myst

So if someone has $300,000 in a company for 2-3 years (already paid the 21% taxes), then that money goes to his personal account .. how much taxes does he pay??

Depends how much you take out, if you only take out 60k, you will pay based on the same rate someone making 60k a year is making. If you take out all of it at 300k, you will pay the highest tax rate which is probably over 40%.

[ravo]

Originally Posted by RawAlex

let me add some stuff here.

First off, one of the best things about a corporation is that it can be a buffer between you and higher tax rates. if you bring in, say, $200k a year, your personal tax rate might run 35-50% on that. Corporately, you would be looking at a much lower rate, probably about 15%-18%. If you have money, you can make money. If the government has it, you make fuck all.

Second, your salary is an expense to the company. Every dollar of salary you take is a dollar less taxable income for the company. So you can take some salary yourself, but not enough to make your taxes go crazy, while at the same time lowering the net of the company.

Second thing is that if you are incorporated, you can pay dividends. Dividends are taxed personally at a much lower rate than regular income, and there is a level (don't remember the number it moves) that is tax free entirely.

If you have taken the step to incorporate, get a good accountant and they will save you thousands of dollars in taxes.

Bingo.

And, my understanding of the tax rates on corp profits, salary and dividends is that no matter how you take your money out of the corp, the net result is that the tax paid is about the same.