If you own your own business, it is important to plan how you get paid while keeping in mind a holistic goal to minimize tax, maximize after tax cash, budget wisely and plan for retirement.
Remuneration considerers how an individual is paid. For a small business owner this can be through dividends, salary, shareholder loan payments or other means. Each remuneration type will have a different tax impact and may impact other financial planning areas, including retirement. A professional remuneration plan will consider each of these areas.
A salary can be deducted from your business as an expense, so you pay less corporate tax. You also get other benefits such as CPP contributions, which you pay for as well as RRSP room. A dividend is paid from after tax corporate dollars, so you pay less personal tax.
A salary provides a deduction to your corporation. This may be a good place to start if you plan on taking funds out and want RRSP room or CPP contributions. If you plan on leaving funds in your company for a period of time, dividends may offer tax deferrals, lower tax brackets or income splitting opportunities.
This basic tax plan should be undertaken annually for small business owners.
A personal and corporate budget will allow the business owner to plan the cash flow and profitability of their business and personal affairs. It is advisable to do this on an annual basis and compare the budget to actual each month to identify areas of concern as well as potential.
Retirement planning is too often put off by business owners to their detriment. A solid retirement plan will tie to your budget and tax strategy for a holistic approach to financial security.
At Shajani, we provide plans in each of these areas and can combine them to achieve a well-rounded strategy to help you realize your goals.
This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. © 2022 Shajani LLP.
Shajani LLP is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.