When you incorporate a company, you effectively create a separate entity, so any cash extracted from your corporation must either be paid via Salary or Dividend.

The payment of a salary is deductible to your corporation whereas dividends are paid from after-tax corporate profits. Careful analysis is needed to calculate the best mix of salary, interest and/or dividends for your specific circumstances. The introduction of the eligible dividend regime has further added to the factors that must be considered in making this decision. There are now two tax rates that can apply to dividends, depending on whether they’re eligible or regular dividends. The eligible dividend regime also means that it’s no longer a rule of thumb to bonus down to the small business limit.

Tax tip: Consider paying yourself a salary large enough to make maximum CPP and RRSP contributions.

The Tax-Free Savings Account (TFSA) program began in 2009. It is a way for individuals who are 18 and older and who have a valid social insurance number to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.  Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are not deductible

Income splitting is simply a method of shifting income from one member of the family, at a high rate of tax, to another member, at lower tax rate, allowing the tax savings from the difference of the tax rate brackets, but there have been legislative provisions, “attribution rules” and other anti-avoidance measures that can prevent some shifting methods, but there are still few permitted ways to accomplish the income splitting. Your situation may be unique, so call us today for the best and sure way to save tax via income splitting