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Tax Deferred is Tax Saved

posted Sep 10, 2014, 11:53 AM by Margaret Lin CPA, CGA, CFP   [ updated Sep 12, 2016, 10:06 PM ]

Tax deferred means you can pay taxes at a later time when you are in a lower tax bracket; also by discounted tax dollars.
 

For example - You can distribute your own corporation surplus to you at a later time by way of dividends.

RRSP is another very popular tax deferral vehicle.

Investment Income in a Corporation

posted Oct 25, 2012, 8:26 PM by Margaret Lin CPA, CGA, CFP   [ updated Oct 25, 2012, 8:26 PM ]

In most case, hold your investment and earn investment income in a corporation could cost you more taxes than holding it personally. In some case there is no tax deferral benefit but tax prepayment.  In British Columbia, say you are in the highest tax bracket, additional of $1,000 investment income earned by the corporation instead of earning it personally can cost you $19 more of taxes.  If you choose retaining the surplus in the corporation, it results $10 of taxes prepayment. Caution should be particularly taken when investment is held in a corporation carrying on an active business.  Also there is the potential for double tax, especially on death.

 

But other potential benefits do exist:

 

  • Protection of assets from creditor
  • Reduction or avoidance of probate fees
  • Protection of assets from U.S. estate tax if the property situated within U.S.
  • Control over the timing of dividend payments to maximize Old Age Security (OAS) benefits

Incorporation of Small Business

posted Oct 21, 2012, 6:52 PM by Margaret Lin CPA, CGA, CFP   [ updated Nov 6, 2013, 11:53 PM ]

Incorporating your small active business could save taxes to you due to small business deduction and dropping of the corporate tax rates.  In British Columbia, say you are in the highest tax bracket, additional of $1,000 income earned by the corporation instead of by sole proprietorship can save you $10 of taxes (after year 2013, this will cost you $6 instead -  click for new tax rules ). No matter save taxes or cost you more, if you choose retaining the surplus in the corporation, it will give you $302 of taxes deferred ($323 after year 2013). 

 

But if all of your business’ profits can only cover your personal living expenses, or if you withdraw all of business’ profits, you may lose the benefits of incorporation from tax saving point of view.  But the incorporation can still provide you the benefits like:

 

  • Personal assets protection
  • Income splitting
  • Deferral of bonus income
  • Lifetime capital gains exemption

When you consider using a corporation to split income, be careful of personal service business rules as they change the income of an “incorporated employee” from the low corporate tax rate to the high corporate tax rate- (click for the new rate) and deny the deduction of almost all expenses, no matter how reasonable.

Investment Income in a Corporation

posted Oct 21, 2012, 3:57 PM by Margaret Lin CPA, CGA, CFP   [ updated Sep 12, 2016, 10:04 PM ]

In most case, hold your investment and earn investment income in a corporation could cost you more taxes than holding it personally. In some case there is no tax deferral benefit but tax prepayment.  In British Columbia, say you are in the highest tax bracket, additional of $1,000 investment income earned by the corporation instead of earning it personally can cost you $19 more of taxes.  If you choose retaining the surplus in the corporation, it results $10 of taxes prepayment. Caution should be particularly taken when investment is held in a corporation carrying on an active business.  Also there is the potential for double tax, especially on death.

 

But other potential benefits do exist:

 

  • Protection of assets from creditor
  • Reduction or avoidance of probate fees
  • Protection of assets from U.S. estate tax if the property situated within U.S.
  • Control over the timing of dividend payments to maximize Old Age Security (OAS) benefits

Incorporation of Small Business

posted Oct 21, 2012, 3:54 PM by Margaret Lin CPA, CGA, CFP   [ updated Sep 12, 2016, 10:02 PM ]

Incorporating your small active business could save taxes to you due to small business deduction and dropping of the corporate tax rates.  In British Columbia, say you are in the highest tax bracket, additional of $1,000 income earned by the corporation instead of by sole proprietorship can save you $10 of taxes (after year 2013, this will cost you $6 instead -  click for new tax rules ). No matter save taxes or cost you more, if you choose retaining the surplus in the corporation, it will give you $302 of taxes deferred ($323 after year 2013). 

 

But if all of your business’ profits can only cover your personal living expenses, or if you withdraw all of business’ profits, you may lose the benefits of incorporation from tax saving point of view.  But the incorporation can still provide you the benefits like:

 

  • Personal assets protection
  • Income splitting
  • Deferral of bonus income
  • Lifetime capital gains exemption

When you consider using a corporation to split income, be careful of personal service business rules as they change the income of an “incorporated employee” from the low corporate tax rate to the high corporate tax rate- (click for the new rate) and deny the deduction of almost all expenses, no matter how reasonable.

Tax Deferred is Tax Saved

posted Oct 21, 2012, 3:52 PM by Margaret Lin CPA, CGA, CFP   [ updated Sep 12, 2016, 10:01 PM ]

Tax deferred means you can pay taxes at a later time when you are in a lower tax bracket; also by discounted tax dollars.
 

For example - You can distribute your own corporation surplus to you at a later time by way of dividends.

RRSP is another very popular tax deferral vehicle.

 

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