Salary vs Dividend – Tax Planning Post 2024 Federal Budget

    VANCOUVER, BC, August 14, 2024 /24-7PressRelease/ -- For CCPCs, who have managed to survive and thrive in the last eight years of tax punishment and COVID disruptions, tax changes in 2024 remain a concern. In their latest blog, the Chartered Professional Accountants at Mew and Company discuss how to move forward to maximize savings and reduce tax burden. For more, go to https://www.mewco.ca/blog/salary-vs-dividend-tax-planning-post-2024-federal-budget/

Before 2016, remuneration to shareholders using dividends was more tax-advantageous. Dividends did not require CPP premiums to be paid by the employer and employee (the same person for many CCPCs). Also, the tax structure at that time resulted in dividends being taxed slightly favourably.
Presently, tax rates applied on CCPC dividends have crept up, so any CPP premiums saved are offset by higher income tax. From a taxation perspective, payroll is the better remuneration method despite the much higher CPP premiums. If the dividend attracts more income taxes, you might as well pay the CPP and receive the CPP benefits in old age. Additionally, payroll creates RRSP room, which the individual can contribute to and use as a deduction.

Investing in RRSP vs CCPC or Holdco

How about investing in the RRSP account vs investing in the CCPC or the Holdco? This choice is a more complicated analysis and discussion. The downside to the wonderful RRSP vehicle has been that the capital gains inside the account when withdrawn, will be fully taxable, whereas capital gains in an unregistered personal or corporate account are 50% taxable. However, unregistered account gains are taxed when the asset is sold, whereas no such taxation occurs in an RRSP. It is a long-term math race, but those who have steadfastly contributed to the RRSP and have been highly successful with investments find it frustrating that access to the RRSP funds comes with significant tax consequences. Many of those with a large nest egg in their RRSP account but who would like to make a draw to assist their adult children in buying a house are finding that CRA would take a big bite out of this RRSP draw first.

The April 2024 budget proposes to tax capital gains earned in a CCPC at an inclusion rate of 66.67 percent, an increase from the existing 50 percent inclusion rate. This is essentially a 33.33% increase in taxes for capital gains earned in a corporation. In addition, it's likely that the CDA that can be extracted tax-free will reduce from the current 50% to 33.33% remaining tax-free.

Given Canada's perennial deficit, it is possible that the capital gains inclusion rate could increase further to 75 percent or more. If this is the case, investing in the RRSP would be more favourable than investing funds in the CCPC. Another case is to create RRSP room by remunerating using the payroll method.

Vancouver Tax Planning Services – Mew & Company

As Vancouver Chartered Professional Accountants, the team at Mew and Company are here to help! Call 604-688-9198 for the peace of mind that comes with working with a professional and experienced chartered professional accountant.

Mew + Company, Vancouver, is an ideal solution to the taxation problem. With a simple philosophy of building long-lasting customer relationships, the company has been serving corporate clients in a variety of fields—including restaurants, real estate, retail, and the service industry. Investing in their specialist services will undoubtedly be fruitful for all kinds of clients.

To learn more about Mew + Company and discuss their services, log on to https://mewco.ca/

Lilly Woo, CPA, CA, CFE, CFP
Mew + Company Chartered Professional Accountants
604-688-9198

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