Weekly Tax Tips
If you haven’t reviewed your remuneration plan recently, some changes may produce significant savings
Date: 5 Aug 2011
At one time, when planning tax-effective owner-manager remuneration strategies, there was an almost universally accepted belief that paying out bonuses to owner-managers to reduce corporate income to be at or just below the small business limit was the way to go (the small business limit is currently $500,000 federally and in all provinces except Manitoba and Nova Scotia).
However, the corporate tax system was substantially changed in 2006 with the introduction of the eligible dividend rules as an initial step to counter the stampede of corporate conversions to income trusts. At the same time, the federal government and some provincial governments started a gradual process of lowering general corporate tax rates. Soon it became clear that as the general tax rate changes were phased in, the tax cost of keeping “high-taxed” general corporate income in Canadian-controlled private corporations was going to decline dramatically, particularly in those provinces which also undertook to reduce provincial corporate tax rates.
If you haven’t reviewed your remuneration plan recently, some of these changes may produce significant savings. Given the complexity of implementing this planning, consult your BDO advisor to ensure that your remuneration strategy is the best for your current and future interests.
For more information, read our Tax Factor 2011-02 article “Owner-Manager Remuneration Strategies – Integration Revisited”.
This tax tip is a publication of BDO Canada LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this tax tip is current as of 5 Aug 2011.
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