Maximizing the use of your corporation Part 3

In the last couple blogs we’ve been discussing some of the ways you can maximize the use of your corporation.  At this time I’d like to remind you that although we’ve covered a lot of information on corporations in this large blog series, we cannot cover it all via blog.  If you have questions on what I am covering or anything I am not covering do not hesitate to contact me.  Also remember that educational articles, such as this one, should be used in conjunction with good planning!

The next thing to discuss in maximizing the use of your corporation is further lesson on dividends.  We have been discussing dividends in this blog series, as well as other blogs, and you can see by now how beneficial it can be to use dividends to save tax.  Remember that corporations can issue dividends to shareholders as long as the corporation has positive retained earnings (sum of profits less dividends declared since the corporation’s inception).  One of the main concepts in tax is to get the lowest overall tax paid between all family members and entities owned and controlled by the family.  So now if we combine that concept with dividends you are looking at big tax savings.  The ideas combined here are to keep all family members at the lowest tax brackets possible using tax favorable types of income. (dividends in this case).  Some of the main options to look at in this maximization of tax savings are to add other family members as shareholders of the corporation(s) or to ensure all your family members are beneficiaries of the family trust if you have one.  Either way you are now able to split dividends amongst family members giving you more options for income splitting and tax savings, with no additional liability.  In the case of the trust you can also split capital gains among beneficiaries. 

Another thing to talk about in looking at dividends from your corporation is Capital Dividends.  Capital Dividends are issued tax free by the corporation and received tax free by the shareholders.  Capital dividends arise out of Capital Gains in a corporation.  When a corporation has a capital gain it only pays tax on 50% of the gain, which is the same as when an individual has a capital gain.  So in essence Capital Dividends are issued out of the 50% non taxable profit arising out of a capital gain in a corporation.  Again, Capital Dividends are non taxable!