Tax Articles
Rate changes for corporate tax and eligible dividends will impact business owner remuneration
Fred Richardson
The Burlington Post
October 2009
Over the next few years, reductions to corporate tax rates will be phased in as the rate on eligible dividends rises. These changes will impact remuneration decisions for many owner-managers of Canadian corporations.
The combined federal and provincial corporate tax rate on general business income will fall by 8% over the next four years. As well, the small business deduction clawback will be eliminated effective July 1, 2010. Meanwhile, the combined personal tax rate on eligible dividends will increase from 23.06% this year to 29.54% by 2012. The following lists demonstrate the impact of these rate changes.
Combined general corporate tax rate:
2009 - 33%; 2010 - 30%; 2011 – 28%; 2012 – 26%; 2013 – 25%
Top combined marginal tax rate on eligible dividends:
2009 – 23.06%; 2010 – 26.57%; 2011 – 28.19%; 2012 – 29.54%; 2013 – 29.54%
Integration cost:
2009 – 2.04%; 2010 – 2.19%; 2011 – 1.89; 2012 – 1.45%; 2013 – .75%
Integration between personal and corporate income tax is an integral part of Canada’s tax system. Owner-managers of corporations have the option of taking remuneration as salary or dividends while integration strives to provide the same combined corporate/personal income tax liability. Perfect integration is not achieved in Ontario, but as shown above, will come close in 2013 once all corporate and personal tax rate changes have been implemented.
Over the next four years, owners of corporations – especially those who paid tax at the general rate prior to 2008 – should ensure that payments of eligible dividends are properly timed to minimize personal taxes. Consult a tax specialist to develop a remuneration strategy that works best for your situation.
Fred Richardson (FRichardson@BDO.ca, (905) 633-4921) is a senior tax manager in the Burlington office of BDO Dunwoody LLP www.bdo.ca
