Sask small biz

[burnt]

Help is on the way -

"Help At Last: House Relief Bill Will Provide Free 'Going Out Of Business' Signs To Small Business Owners"

https://babylonbee.com/news/house-relief-bill-will-provide-free-going-out-of-business-signs-to-small-business-owners https://babylonbee.com/news/house-relief-bill-will-provide-free-going-out-of-business-signs-to-small-business-owners

[Richard5]

I hope people understand corporate tax integration and what actually happens when the gov't lowers the corp rates, especially to those older farm and business corps that are not taking substantial dividends now.

The government always wins in total as the corp rate goes down.

My accountant said ideally we need the corp rate to go up 10%.....

[Guest]

can you expand on that ?

[farmaholic]

I definitely do NOT have a firm grip on this handle, but I always thought that whether you decided to take a salary or a dividend the resulting tax paid was fairly close after integration was taken into account.

Money paid out to the shareholder in dividend or salary should be close, please explain where lowering corporate tax rate would affect this.....I would have to do more research. Corporate tax, dividend, gross up, dividend tax rate....shouldn't all the math come close to equalling salary income tax rate.

The real benefit of incorporation, in my mind, is building the business with a bigger after tax dollar .....getting the money out is the great equalizer.

It has to be managed.

I like your input and insight Richard5.

[Richard5]

I will try to explain it as it was explained to me.

What you basically said Farma is true. A corporation should not really give you and net advantage other than a deferral of tax, at the end of the day.

Here’s the issue. Dividends are basically taxed as the difference between what the company has paid and your personal bracket rate in the year taken. When you have earned a lot of your wealth in the corporation and paid taxes at 12%, 13%, 15% to as high as 21.12%, the issue is you only get the dividend tax credit based on the corporate tax rate in effect for that year. In summary, my farm grew a lot of its wealth when tax was 15.5 to 18% (sask rates) and i only took what i needed to live etc. Now that i am coasting a bit and built up some reserve money, i would like to take some extra out. The tax credit i will get on next years dividend will be based on a corp tax rate paid of 9%, not the actual higher rates i have paid. so the total tax i paid will be more than the next guy that has earned his income in the last couple years.

Of course this is ignoring the compounding effect of being in a company for over 20 years and deferring the ultimate dividend tax at the end if winding up a company.

We also have to keep in mind that personal tax rates have dropped and brackets increased over the last 20 years also.

Confusing, you bet. Get your accountant to show you this one.

If growing your farm today, low rate is good. Exiting or drawing large sums out of and old company then a low corp rate is not good. For me, i would love to lobby the gov’t to increase the corp rate to 25%. Then i would take large dividends before i get to 65

[farmaholic]

Is what you're trying to tell me there is a disconnect between when the corporate income was earned and taxed and the year the dividend was declared and received by the shareholder?

Is it that the gross up in the dividend used to calculate the tax payable by the shareholder may not be reflective of the corporate tax rate that was paid when the corporate income was earned?

It is convoluted

[Richard5]

Is what you're trying to tell me there is a disconnect between when the corporate income was earned and taxed and the year the dividend was declared and received by the shareholder?

Is it that the gross up in the dividend used to calculate the tax payable by the shareholder may not be reflective of the corporate tax rate that was paid when the corporate income was earned?

It is convoluted

Yeah essentially