Benefits Paid to Shareholder Employees: Are They Taxable?

The CRA is aware that owner-managers have an incentive to receive benefits deductible by their corporation which are non-taxable to the owner. In essence, this can be perceived as a method to extract profits out of a corporation without paying tax on it. As such, CRA is particularly vigilant to ensure that these benefits comply with the Income Tax Act and do not confer unfair advantages on owners. To start off, it must be established…

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2018 Tax Planning: Renumeration

Higher levels of personal income are taxed at higher personal rates, while lower levels are taxed at lower rates. Therefore, individuals may want to, where possible, adjust income out of high income years and into low income years. This is particularly useful if the taxpayer is expecting a large fluctuation in income, due to, for example, an impending maternity/paternity leave; large bonus/dividend; or sale of a company or investment assets. In addition to increases in…

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Active Business vs. Property Income: Music Royalties

A private corporation’s income from a specified investment business (SIB) is not eligible for the active business tax rates (varying from 10% to 31%, depending on a number of factors, including the total earnings from operations and the province or territory in which it is located). Rather, a corporate investment tax rate of around 50% is levied (again, it varies by jurisdiction). In a July 10, 2018 Tax Court of Canada case, at issue was…

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Tax on Split Income (TOSI): Can I Take a Salary Instead of a Dividend?

Dividends received by individuals from private corporations as of January 1, 2018 may be subject to taxation at top marginal tax rates (due to the new TOSI rules) if, in general, they are determined to be unreasonable. Salaries, however, are not specifically subject to these rules. As such, some may consider replacing potentially unreasonable dividends with large salaries or bonuses. This article considers some implications and risks when deciding to pay a salary instead of…

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Divorce Settlement: Family Business

In a June 11, 2018 Court of Queen’s Bench for Saskatchewan case, at issue was whether a $500,000 settlement upon separation was taxable and whether the dispute over its tax status rendered the settlement void. The settlement did not concern a division of marital assets but, rather, rights to income and property forgone or promised during the term of the marriage. In particular, the recipient (Mr. R) was primarily seeking payment in respect of insufficient…

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