Taking Money from your Corporation Part 3

The 3^rd main way that you will take money from you corporation is through payroll.  Payroll can come in the form of wages, salaries, bonuses, benefits, severance and more.  Payroll may be good if you have a lot of employees, however it is very inefficient if you are a small corporation with little to no employees!  Payroll brings great administrative work, regular $ remitting requirements, and extra CRA filing requirements.  If you are late on a payroll remittance by even a day you could wind up with large penalties, tacking on interest daily.  Having payroll also makes you more prone to a CRA audit as many CRA audits begin with Payroll Trust Exams!  There are many reasons to stay away from payroll, so please do talk to us about your options. 

The key when deciding how to take money from your corporation is understand the rules and follow them.  Now that we’ve outlined Shareholder Loans, Dividends and Payroll in this blog series you have a little understanding of what you can and can’t do.  Here is my tip to you: The best way to take money from your corporation or pay yourself is to simply take draws monthly of what you need to live on (your closed circle) and then when tax planning at the corporation’s year end, we can decide if the draws you took were shareholder loan, dividends, wages or a combination of!  This principal applies the same for taking out a lump sum when necessary.  Keep in mind that if you are married and your spouse is also a shareholder of the corporation, the draws should be in both of your name and put into a joint bank account to give maximum control of income splitting. This is very efficient for tax planning and is legal as you are allowed to borrow/draw money (shareholder loan) from your corporation for up to a year past the corporation’s year end.  In the case of the tip I just gave you, we wouldn’t even need to go past the current corporate year end before we claim it as income, and if there is a reason to not claim it as income this year then we have the option of deferring it.

You now have some great knowledge on the basics of taking money out of your corporation.  Do it wisely and save many headaches and taxes, putting more in your pocket!  For questions, to talk further about this topic and others, or to look at Kustom Design taking care of your corporate accounting and tax needs, don’t hesitate to contact us!

Working with your Corporation Part 3: Payroll & Year Ends

Here are some key details you need to know on payroll, year ends and corporate returns when you are working with your corporation:

Payroll remitting:

Payroll is typically remitted monthly, specifically on the 15^th of the following month.  Payroll remittances consist of Federal and Provincial taxes withheld from the employees, CPP – Employee and Employer portion, and EI – Employee and Employer Portion.  There are alternatives to payroll, so do inquire with us at Kustom Design.  If you do have payroll, never get behind as the penalty and interest can kill your business.

Corporate Year Ends: 

Corporations get to pick which month they’d like for their year end.  It is good to pick a month that works for the owner and the accountant and is best for deferring tax.  For example, if you own a business that requires inventory counts at year end, you would want the year end to be a month where you are not busy so you have time to do the inventory count and don’t lose important revenues. 

An example of deferring tax would be if your business makes most of its money in the summer, you’d want a year end that is just before the summer, so each year the taxes on the busy summer months aren’t paid until a whole year later (tax deferral).  Kustom Design can help you pick a beneficial Year End Date. 

Annual Returns (for Corporations):

In Alberta, we are required to file an annual return with the Provincial Government to let them know the Corporation is still active, who the current shareholders and directors are and the current address.  The cost is not a lot for this filing. However, if you do not file the annual return for your corporation, it can be dissolved which brings many negative consequences and costs.  Kustom Design can handle your Annual return filings each year, and it can be included in your package!