This press release was orginally distributed by ReleaseWire
Vancouver, BC -- (ReleaseWire) -- 03/13/2023 -- As Vancouver Chartered Accountants, there have been many changes made to the taxation of CCPC since the current Liberal Government came into power back in 2015. The most significant tax change is the maximum $50,000 of aggregate investment income ("AII") that a CCPC can earn before the $500,000 small business deduction limit ("SBD") is impacted. For more, go to https://www.mewco.ca/blog/taking-more-remuneration-from-your-corporation-can-be-good-tax-planning/
Once the maximum AII of $50,000 is exceeded, the small business deduction limit is reduced by $5 for every $1 additional investment income. Hence, once investment income reaches $150,000, the CCPC will not be entitled to the small business deduction the following year. Consequently, all corporate profit will be taxed at the current "big" rate of 27% (for BC resident corporations). Note that current year AII impacts the available SBD limit the following year only. The CCPC starts with the entire $500,000 SBD every year, which is reduced accordingly by the excess AII from the prior year. Exceeding the AII limit one year does not leave the CCPC with the big rate continuously into the future.
On the one hand, the 27% corporate tax rate is still a good deal for CCPC if one considers that the highest personal tax bracket is 53.5%, and this starts at $240,717 of employment income. On $200,000 employment income, the total incomes taxes is approximately $64K or 32% average tax rate plus the employer and employee portion of the CPP premiums combining for $7490.
On the other hand, there is disintegration of investment income earned in a corporation. (This is a fancy way of saying investment incomes earned in a corporation are taxed higher than investment income earned directly personally.) The refundable tax regime further penalizes corporate investment income by forcing the CCPC to pay taxes on investment income upfront. The introduction of ERDTOH and NERDTOH made dividend distribution that gave access to the refundable taxes from CRA more complex. Finally, the personal tax rates on ineligible dividends have increased annually between 2015 to 2022.
Where does this leave the CCPC shareholder with the amount and type of remuneration when tax planning?
Consider starting with a payroll remuneration of $171,000 or thereabout. This figure gives the shareholder/manager the maximum RRSP deduction amount or $30780. It also dramatically exceeds the CPP pensionable ceiling amount of $66,600. The RRSP allows tax sheltering and reduces the personal tax burden. The corporate taxes are reduced, especially if the CCPC has no SBD room. CPP contributions are being made. Dividends can also be issued to get back some or all of the refundable taxes. Best of all, lower personal tax brackets are being. Remunerations to the shareholder are not minimized but tax efficient and sustainable over the long run.
At the corporate level, the retained earnings accumulated are less than otherwise, as funds are accumulated personally and in the RRSP account instead. The AII being earned each year can be managed and massive grind down of the SBD can be avoided annually.
A relatively young shareholder will significantly benefit from the tax shelter benefits of the RRSP. The introduction of the FHSA in 2023 will increase the tax shelter benefits. Note that the corporation will also be accumulating retained earnings for investment. For more information, contact the Vancouver Chartered Accountants at Mew + Company. Call 604-688-9198 to get started.
About Mew + Company
Mew + Company, Vancouver, is an ideal solution to the taxation problem. With a simple philosophy of building long-lasting customer relationships, the company has been serving corporate clients in a variety of fields—including restaurants, real estate, retail, and the service industry. Investing in their specialist services will undoubtedly be fruitful for all kinds of clients.
To learn more about Mew + Company and discuss their services, go to the website at https://mewco.ca/
Lilly Woo, CPA, CA, CFE, CFP
Mew + Company Chartered Professional Accountants
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